Neely et al

Filing 30

MEMORANDUM OPINION AND ORDER affirming (1) Order Denying Plaintiffs' Amended Motion to Remand entered on March 22, 2012; affirming (2) Order denying Cindy D. Neelys Notice of Dismissal under FRCP 41(a) entered on 3/22/2012; affirming (3) Order d enying George R. Neely's Notice of Dismissal under FRCP 41(a) entered on 3/22/2012; affirming (4) Order Denying Plaintiffs' Motions to Dismiss and Granting Defendants' Motion to Dismiss entered on 3/22/2012; affirming (5) Order sanctioning appellants entered on 8/29/2012; affirming (6) the Final Judgment entered on 9/6/2012; denying as moot 2 MOTION to Dismiss 1 Appeal. (Signed by Judge Sim Lake) Parties notified. (aboyd)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE:
GEORGE R. NEELY,

§
§

BANKRUPTCY NO. 04-44898-H5-7

§
§

DEBTOR.

§
§
§
§
§
§
§

GEORGE R. NEELY, and
CINDY NEELY,
Plaintiffs,

Adversary No

5
JAMES M. TRIPPON, and
J.M. TRIPPON & CO., C.P A. r
Defendants.

GEORGE R. NEELY, and
CINDY NEELY,

§
§
§
§

§

5
§
§

Appellants,

5
v.

§

JAMES M. TRIPPON, and
J.M. TRIPPON & CO., C.P.A.,

Civil Action No. 12-1008

§
§

5
§
§

Appellees.

MEMORANDUM OPINION AND ORDER

Appellants, George R. Neely and Cindy Neely, appeal six orders
of

the

Bankruptcy

Court

entered

in Adversary

No.

11-03637:

(1) Order Denying Plaintiffsr Amended Motion to Remand entered on
March 22, 2012;

(2) Order denying Cindy D. Neelyrs Notice of

Dismissal under FRCP 41(a) entered on March 22, 2012; (3) Order
denying George R. Neely's Notice of Dismissal under FRCP 41(a)
entered on March 22, 2012; (4) Order Denying Plaintiffsf Motions to
Dismiss and Granting Defendantsf Motion to Dismiss entered on
March

22,

2012;

(5) Order

sanctioning appellants

entered

on

August 29, 2012; and (6) the Final Judgment entered on September 6,
2012 .'

Pending before the court are Appellees James M. Trippon and

J.M. Trippon

&

Company, CPAfs Motion to Dismiss Appeal

(Docket

Entry No. 2), Amended Brief for Appellants (Docket Entry No. 27),
and Brief for Appellees James M. Trippon and J.M. Trippon

&

Co.,

C.P.A., (Docket Entry No. 29).'

For the reasons explained below,

the Bankruptcy

and

Courtfs Orders

Final

Judgment

entered

in

Adversary No. 11-03637 will be affirmed, and Appellees James M.
Trippon and J.M. Trippon

&

Company, CPArs Motion to Dismiss Appeal

(Docket Entry No. 2) will be denied as moot.

'~mended Notice of Appeal, Docket Entry No. 16, and Exhibits
A-F attached thereto. See also Order Denying Plaintiffs' Amended
Motion to Remand, Docket Entry Nos. 8-16 and 26-1; Order denying
Cindy D. Neely's Notice of Dismissal, Docket Entry Nos. 8-17 and
26-2; Order denying George R. Neely's Notice of Dismissal, Docket
Entry Nos. 8-18 and 26-3; Order Denying Plaintiffsf Motions to
Dismiss and Granting Defendantsf Motion to Dismiss, Docket Entry
Nos. 8-20 and 26-4; Order awarding sanctions, Docket Entry Nos. 2310 and 26-5; and Final Judgment, Docket Entry Nos. 23-11 and 26-6.
'several designations of record have been filed, i.e., Docket
Entry Numbers 8, 22, 23, and 26. Page citations to the bankruptcy
court documents included in these filings are to the pagination
imprinted by the federal court's electronic filing system at the
top and right of the document.
Page citations to the parties'
briefs are to the native page numbers at the bottom of the page.

I.

Factual and Procedural Backaround

James Trippon and his company, Trippon

&

Company (collectively

"Trippon") performed tax accounting services for George R. Neely
(Neely) from approximately 1990 to approximately 2004, and for
Cindy D. Neely from approximately 1998 when she married George to
approximately 2004.3 On October 19, 2004, Neely filed a voluntary
petition under Chapter 7 of the Bankruptcy Code, Case No. 04-44898.
On October 14, 2005, the Internal Revenue Service (IRS) filed
a

Proof

of

Claim

in

the

amount

of

$343,193.98

in

Neely's

bankr~ptcy.~
Attached to the Proof of Claim was a schedule of the
tax deficiencies and the dates the taxes were a s ~ e s s e d . ~
On October 10, 2008, the Bankruptcy Court denied George Neely
a discharge under

11 U.S.C.

§

727, after ordering that "the

judgments in favor of the Commission for Lawyer Discipline against
George
§

R.

Neely

are

not

discharged

pursuant

to

11

U.S.C.

532 (a)(7). " 6
On November 21, 2008, George Neely sued the IRS in Adversary

Number 08-03456 styled Georse Nellv v. Internal Revenue Service,

3 ~ e ePlaintiffsf Original Petition in 2011-75043 filed in
151st Judicial District Court of Harris County, Texas, Docket Entry
Nos. 8-5 and 22-23 at p. 2.
4~ocket
Entry No. 22-24.

6~inal
Judgment entered in Bankruptcy Case No. 04-44989-H5-7
(Docket Entry No. 327), and Adversary No. 05-3503 (Docket Entry
No. 104) .

("IRS

Litigation")

seeking

declaratory

judgment

that

tax

liabilities that he had scheduled in a previous bankruptcy filed in
Victoria, Texas, in 1996, (Bankruptcy No. 96-20413), had been
d i ~ c h a r g e d . ~On July 30, 2009, the Bankruptcy Court granted the
IRSfsmotion for summary judgment and held that tax liabilities for
which the IRS had filed proof of claim in Neely's 2004 bankruptcy
had not been discharged in Neelyfs 1996 bankruptcy:
The United States Motion for Summary Judgment is GRANTED.
Plaintiff's Form 1040 income tax liabilities for tax
years 1990-1997 and 2003, his Form 941 tax liabilities
for the tax period ending September 30, 1996 through the
period ending December 31, 1997, the period ending
March 31, 1999 through the period ending December 31,
2001 and the periods ending June 30, 2002, September 30,
2002, September 30, 2003 and December 31, 2003 and
plaintiff's Form 940 FUTA liabilities for the tax years
ending December 31, 1998, December 31, 2000, December 31,
2001, December 31, 2003 and December 31, 2004 were not
discharged in Bankruptcy No. 96-20413.
Plaintiff' s
Motion for Summary Judgment is DENIED.'
On December 15, 2009, the District Court dismissed Neely's appeal
of the Bankruptcy Court's grant of summary judgment to the IRS.'
On June 18, 2010, Neely sent Trippon a letter stating:

70rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 3.
See also Debtorfs Amended
Complaint Seeking Dischargeability Determination and Amount, If
Any, Due identifying the purpose
of
the
suit as the
dischargeability of tax claims, Docket Entry No. 8-24, pp. 21-36.
80rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 3.
See also Summary Judgment
entered in Adversary No. 08-03456, Docket Entry No. 8-22.
'order of August 29, 2012, Exhibit E to Amended Notice of
See also Dismissal Order,
Appeal, Docket Entry No. 16, p. 3.
Docket Entry No. 7 entered in Civil Action No. H-09-2665.

Please consider this as my demand that you submit my
claim against you for malpractice to your E&O insurance
carrier.
My claim arises in connection with your
preparation of several income tax returns and the filing
of same and advising me and my bankruptcy attorney that
the tax returns had been on file the required period of
time so as to discharge the taxes, penalties and interest
due in connection with the income tax returns in a
Chapter 7 bankruptcy proceeding filed by me in Victoria,
Texas in approximately 1997. For several years after the
Chapter 7 Discharge order received by me from the
Victoria Bankruptcy Court you continued to advise me in
connection with my financial affairs that the income
taxes scheduled in the 1997 bankruptcy case in Victoria,
Texas, were no longer owed by me.

I again conferred with you in October of 2004 in
connection with you and Bill Carr regarding my financial
situation, at which time both you and he advised me to
file another Chapter 7 Bankruptcy proceeding. I did so
and eventually filed an adversary against the IRS to
confirm the discharge of approximately $300,000.00 in
taxes, penalty and interest for the years covered in the
1997 Victoria, Texas Bankruptcy proceeding.
The
Bankruptcy Court in Houston, Texas entered a Summary
Judgment that the 1997 bankruptcy case filed by me in
Victoria, Texas did not discharge the taxes, interest and
penalties you were retained to handle because the income
tax returns were not on file the required period of time
to effect a discharge of the taxes, penalties and
interest owed in connection therewith. I am enclosing a
copy of the Summary Judgment for your edification.
Instead, I now owe the taxes, penalties and interest that
were not discharged as well as any penalty and interest
owed thereon since the filing of the 1997 Victoria
Bankruptcy proceeding.
I hereby demand that you submit my claim for
$2,500,000.00 to your malpractice insurance carrier. But
for your negligence in the handling of the Victoria
Bankruptcy income tax matters, and your subsequent
advice, I would not have needed to file the 2004
Bankruptcy proceeding as you and Bill Car advised me to
do and would not have experienced the severe financial
losses as a proximate result thereof. My wife, Cindy,
may be sending you her own demand letter as a result of

her losses proximately caused by your negligence in the
handling both of our affairs.''
On July 1, 2010, Richard White, an attorney hired by Trippon's
insurer to represent Trippon and his company, sent a response to
Neelyrs

demand

letter

asserting,

inter

alia,

that

Neelyrs

malpractice claims were not only time barred, but also assets of
Neelyrs bankruptcy estate that Neely had not standing to bring."
On December 14, 2011, Appellants filed Cause No. 2011-75043
styled Georqe D. Neely and Cindy Neely vs. James M. Trippon, J.M.
Trippon

&

Co., CPArs and Bill Carr, in the 151st Judicial District

Court of Harris County, Texas, (the "removed state court action")
against Trippon, Trippon

&

Company, CPArs, and Bill Carr alleging

claims for negligence arising from allegations that Appellees had
committed accounting malpractice by giving them advice regarding
the dischargeability of George's taxes in the 1996 bankruptcy.''
On December 20, 2011, citing 28 U. S.C.

§§

157 (a), 1334 (b), and

1452 (a), Trippon removed Civil Action No. 2011-75043 from state
court to the Bankruptcy Court administering Neely's Chapter 7 case
asserting:

'O~ocketEntry No. 8-24, pp. 4-5.
''Docket Entry No. 23-5, pp. 6-8.
12plaintiffs' Original Petition, filed in Civil Action
No. 2011-75043 in the 151st Judicial District Court of Harris
County, Texas ("Plaintiffrs Original Petition") , Docket Entry
NO.

8-5.

1.
On October 19, 2004 the above named debtor, George
R. Neely ("Neely") [filed] a petition seeking relief
The
under Chapter 13 of the Bankruptcy Code. . . .
bankruptcy is still ongoing in the United States
Bankruptcy Court for the Southern District of Texas,
Houston ~ivisionl3
.
2.
On December 14, 2011, Neely filed suit in the Cause
No. 2011-75043; styled G e o r g e R. N e e l y a n d C i n d y D. N e e l y
v s . J a m e s M . T r i p p o n , J . M . T r i p p o n & C o m p a n y , C . P.A. 's
a n d B i l l C a r r , in 15[l]st Judicial District Court of
Harris County, Texas . . . alleging breach of fiduciary
duty among other claims.14 Neely alleges actions taken
by Defendants as Debtor's personal accountants caused he
and his wife damages.

3.
The State Court Lawsuit, including all claims and
causes of action asserted therein, is a civil action
other than a proceeding before the United States Tax
Court; and it is not a civil action by a governmental
unit to enforce such governmental unitrs police or
regulatory power. The State Court Lawsuit is a civil
proceeding related to the Bankruptcy Case. All cause[s]
of action alleged by Neely against Trippon occurred pre
bankruptcy filing; therefore would be property of the
Bankruptcy estate. Neely failed to list any of these
claims in his bankruptcy schedules so they would be
disclosed to the Chapter 7 Trustee. The Bankruptcy Court
presiding over the Bankruptcy Case, pursuant to the
general reference with respect to Title 11 cases in the
Southern District of Texas and 28 U.S.C. § 157, has
jurisdiction of each and every cause of action asserted
in the State Court Action under 28 U.S.C. § 1334(b).

l 3 The statement that Neely filed a Chapter 13 petition is a
mistake; Neely filed a Chapter 7 petition. See Docket Entry No. 1
in Bankruptcy Case No. 04-44898-H5-7.

l 4 AS the Bankruptcy Court correctly stated, Appellantrs State
Court lawsuit alleged that "Trippon was negligent in the course of
rendition of services to Neely by failing to accurately calculate
the date for the discharge of tax debt in bankruptcy and advising
that Neelyrs bankruptcy retention should be filed."
Order of
August 29, 2012, Exhibit E to Amended Notice of Appeal, Docket
Entry No. 16, p. 2. See § III.A.2(a), below.

4.
The State Court Lawsuit is, on its face, a core
proceeding that deals with issues intrinsic to the
bankruptcy. Neely alleges that Defendants actions in
advising him on the timing of the filing of his
bankruptcy caused him financial losses. These causes of
action belong to the Chapter 7 Bankruptcy Trustee and not
to Neely.

5.
Upon removal, all such proceedings are core
proceedings under 28 U. S .C. § 157 (b)(2)(A), (B), (C),
(E), and (0).I5
On December 22, 2011, Appellants filed individual notices of
dismissal pursuant to Federal Rule of Civil Procedure 41 (a)(1).I6
On January 6, 2012, Appellees moved the Bankruptcy Court to
dismiss the claims asserted against them in the removed state court
action based on arguments that the negligence claims belonged to
Neely's bankruptcy estate, Appellants lacked standing to assert the
negligence claims, and the negligence claims were time barred.l 7
Asserting that Neely had brought a frivolous pleading in state
court merely

circumvent the jurisdiction

the Bankruptcy

Court, Appellees also asked the court to enjoin Appellants from

15~otice Removal, Docket Entry No. 8-3, pp. 1-2 ¶¶I-5.
of
16plaintiff Cindy D. Neely's Notice of Dismissal, Docket Entry
No. 8-6, and Plaintiff George R. Neely's Notice of Dismissal,
Docket Entry No. 8-8.
"~efendantsJames M. Trippon and J.M. Trippon & Company, CPA' s
Motion to Dismiss Pursuant to Bankr. R. 7012(b), and Fed. R. Civ.
P. 12(b) Objections to George Neely's and Cindy Neely's Motion to
Dismiss and Motion for Permanent Injunction and for Sanctions,
Docket Entry No. 8-10, p. 4 ¶ll.

filing any claims against them that accrued before 2007, and to

.
sanction ~ppellantsl8
On January 18, 2012, Appellants filed a Motion to Remand,lg
which they amended on January 23, 2012.20
On

March

22,

2012,

the

Bankruptcy

Court

conducted

an

evidentiary hearing on the pending motions, i.e., Appellants'
motions to dismiss and amended motion to remand, and Appellees'
motion

to

dismiss.21

At

the

conclusion of

the

hearing

the

Bankruptcy Court denied Appellants' motions to dismiss and amended
motion to remand, and granted Appellees' motion to dismiss.22 The
Bankruptcy Court also enjoined Neely from filing future pleadings
against Appellees, stated that an order would be entered directing
Neely to show cause as to why he should not be enjoined from any
future filings against property of the estate and its creditors

lgplaintiffs' Motion to Remand, Docket Entry No. 8-11.
''plaintiff s f Amended Motion to Remand, Docket Entry No. 8-13.

ransc script of March 22, 2012, hearing, Docket Entry Nos. 8-27
and 22-6.

r mended Notice of Appeal, Docket Entry No. 16, and Exhibits
A-D attached thereto. See also Order Denying Plaintiffs' Amended
Motion to Remand, Docket Entry Nos. 8-16 and 26-1; Order denying
Cindy D. Neely's Notice of Dismissal, Docket Entry Nos. 8-17 and
26-2, Order denying George R. Neelyfs Notice of Dismissal, Docket
Entry Nos. 8-18 and 26-3, and Order Denying Plaintiffs' Motions to
Dismiss and Granting Defendants' Motion to Dismiss, Docket Entry
Nos. 8-20 and 26-4.

without

leave

of

court,

and

retained

jurisdiction

to

hear

Appelleesf motion for sanctions at another time.23
On March 24, 2012, the Chapter 7 Trustee filed his Notice of
Intent to Abandon Property which included the negligence claims
asserted in the removed state court action.24
On March 30, 2012, Appellants filed a Notice of Appeal from
the orders entered by the Bankruptcy Court on March 22, 2012,'~ and
on April 2, 2012, their appeal was assigned to this court.26
On April 17, 2012, Appellants filed a second Amended Motion to
Remand.2 7
On April 30, 2012, the Bankruptcy Court entered a Show Cause
Order directing Appellees to file an application for attorney fees
by June 6, 2012, and setting a hearing for June 20, 2012.28

230rder Denying Plaintiffsf Motions to Dismiss and Granting
Defendantsf Motion to Dismiss, Exhibit D to Amended Notice of
Appeal, Docket Entry No. 16. See also Record Nos. 8-20 and 26-4.
2 4 ~ o ~ kEntry No. 481 and Exhibit A attached thereto filed in
et
Bankruptcy Case No. 04-44898-H3-07.
2 5 ~ o ~ k Entry No. 29 in Docket Report for Adversary No. 11et
03637, Docket Entry No. 8-1.
26~ocket
Entry No. 32 in Docket Report for Adversary No. 1103637, Docket Entry No. 8-1.
2 7 ~ o ~ k Entry No. 36 in Docket Report for Adversary No. 11et
03637, Docket Entry No. 8-1.
280rder to Show Cause, Docket Entry No. 23-1.

On June 8, 2012, Appellants filed a Supplement to Amended
Motion to Remand in which they again moved the court to remand
their negligence claims against Appellees to state court.29
On June 20, 2012, the Bankruptcy Court held the show cause
hearingI3O and on August 29, 2012, the Bankruptcy Court entered an
Order setting forth its findings .31 After rejecting Appellants'
argument

that

the

Trustee's

Notice

of

Abandonment

filed

on

March 24, 2012, deprived it of j u r i ~ d i c t i o n , ~ ~ Bankruptcy Court
the
found that (1) the lawsuit Appellants filed against Appellees on
December 14, 2011, for negligence arising from allegations of
accounting malpractice was barred by the applicable statute of
(2)
lirnitati~ns;~~ Appellants were judicially estopped from pursuing
~~
their malpractice claims against ~ p p e l l e e s ;and (3) Appellants'
Post Dismissal Motion to Remand was moot.35 The Bankruptcy Court
also found that good causes existed under Tex. R. Civ. P. 13 to

29~laintif' Supplement to Amended Motion to Remand, Docket
fs
Entry No. 23-3.
30~ranscript June 20, 2012, Show Cause Hearing, Docket Entry
of
Nos. 23-9 and 29-2.
310rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16. See also Order, Docket Entry Nos. 2 3 10 and 26-5.

sanction George Neely by ordering him to pay attorneysr fees in the
amount of $14,763.00 to Appellees for services provided by Richard
White, and $12,940.00 to Mynde Eisen, Appeeleers counsel.36
On September 6, 2012, the Bankruptcy Court entered the Final
Judgment from which Appellants now
On September 7, 2012, Appellants filed their Amended Notice of
Appeal (Docket Entry No. 16) .

11.

Standard of Review

A district court has jurisdiction to hear an appeal from a
bankruptcy courtrs final judgment or order. 28 U. S .C. § 158 (a)(1).
The Bankruptcy Court's "[flindings of fact, whether based on oral
or documentary evidence, shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of the
bankruptcy court to judge the credibility of the witnesses."

R. Bankr. P. 8013.

Fed.

The Bankruptcy Courtrs conclusions of law and

conclusions on mixed questions of law and fact and application of
law to the facts are reviewed de novo.

In re Bass Corp., 171 F.3d

1016, 1021 (5th Cir. 1999).

3

6

at ~ 11 and 15.

3 7 ~ i n aJudgment, Exhibit F to Amended Notice of Appeal, Docket
l
Entry No. 16. See also Final Judgment, Docket Entry Nos. 23-11 and
26-6.

111.
Appellants
(1)

denying

argue

their

(2) dismissing the
action

with

Analysis

that

the

Bankruptcy

initial

and

amended

claims

prejudice;

asserted

(3)

denying

Court

erred

by

motions

to

the

removed

s t a t e court

their

second

amended

in

remand;

and

s u p p l e m e n t a l m o t i o n s t o remand; a n d ( 4 ) s a n c t i o n i n g G e o r g e N e e l y .

A.

The Bankruptcy Court Did Not Err by Denying Initial Motions to
Remand
A s s e r t i n g t h a t t h e Bankruptcy Court l a c k e d j u r i s d i c t i o n over

the

removed

state

court

action,

Appellants

argue

that

the

B a n k r u p t c y C o u r t e r r e d b y d e n y i n g t h e i r i n i t i a l m o t i o n t o remand
b e c a u s e t h e n e g l i g e n c e c l a i m s a s s e r t e d i n t h e removed s t a t e c o u r t
a c t i o n were n o t c o r e p r o c e e d i n g s a n d were n o t r e l a t e d t o N e e l y f s
b a n k r u p t c y e s t a t e , were n o t p r o p e r t y o f N e e l y f s b a n k r u p t c y e s t a t e ,
and involved claims of non-debtor,
1.

Cindy Neely.

The B a n k r u p t c y
Court
Did Not
Err
by
Exercisinq
J u r i s d i c t i o n Over t h e Removed S t a t e C o u r t A c t i o n

I n t h e O r d e r i s s u e d on A u g u s t 29, 2012, t h e B a n k r u p t c y C o u r t
s t a t e d : "This Court h a s j u r i s d i c t i o n over t h i s proceeding pursuant
to

28

U.S.C.

§

1334 a n d

157.

This

i s a core p r ~ c e e d i n g . " ~ ~

Appellants a r g u e t h a t t h e Bankruptcy Court e r r e d by denying t h e i r

3 8 0 r d e r o f A u g u s t 29, 2012, E x h i b i t E t o Amended N o t i c e o f
A p p e a l , Docket E n t r y No. 1 6 , p . 2 .
S e e a l s o O r d e r , Docket E n t r y
Nos. 23-20 a n d 26-5, p . 2 .

initial motion to remand because the claims alleged in their state
court action

were

not

removable because

they

were

not

core

proceedings and were not related to Neelyfs open bankruptcy case.39
Citing 28 U.S.C.

§

1334 (e)(I), Appellees argue that the Bankruptcy

Court possessed subject matter jurisdiction to hear the removed
action and all motions filed therein because "[tlhe State Court
Litigation's
estate.

causes of action were property of the bankruptcy

Actions relating to or concerning property of the estate

are core proceedings since assets of the Bankruptcy estate must be
administered by the Bankruptcy Court."40 The question of whether
the

Bankruptcy

Court

erred

by

exercising

subject

matter

jurisdiction over the removed action is a question of law that the
court reviews de novo.

In re U.S. Brass Corp., 301 F.3d 296,

303 (5th Cir. 2002); In re Bass, 171 F.3d at 1021.

(a) Applicable Law
28 U.S.C. 5 1452(a) provides for removal to a federal district
court of claims related to bankruptcy cases, if the district court
has jurisdiction based on 28 U.S.C.

§

1334.

Section 1334 provides

District courts bankruptcy jurisdiction over four types of matters:
(1) cases under title 11; (2) proceedings "arising under" title 11;

39~mended
Brief for Appellants, Docket Entry No. 27, pp. 15-18.
40~rief
for Appellees James M. Trippon and J.M. Trippon
CPA's, Docket Entry No. 29, p. 14.

&

Co.,

(3) proceedings

"arising

in"

a

case

under

title

and

11;

(4) proceedings "related to" a case under title 11. See 28 U.S.C.
1334.

The first category refers to the bankruptcy petition

itself, which was not at issue.
(5th Cir. 1987).
Circuit

has

See In re Wood, 825 F.2d 90, 92

As to the remaining three categories, the Fifth

determined

that

for purposes

of

removal

it

is

unnecessary to distinguish among the three as long as the matter is
at least "related to" the bankruptcy.

The Fifth Circuit reasoned

that these three "references operate conjunctively to define the

d
scope of jurisdiction." I .at 93.

"Federal courts have 'related

tor subject matter jurisdiction over litigation arising from a
bankruptcy case if the 'proceeding could conceivably affect the
estate being administered in bankruptcy.,"
(U.S.1 ,

Lone Star Fund V

L.P. v. Barclavs Bank PLC, 594 F.3d 383, 386 (5th Cir.

2010) (quoting In re TXNB Internal Case, 483 F.3d 292, 298 (5th
C

r)

, cert. denied, 128 S .Ct. 613 (2007)) .

More specifically,

"'[rlelated tor jurisdiction includes any litigation where the
'outcome

could

alter, positively

rights, liabilities,

options,

or

or negatively,
freedom of

the debtor's

action

influence the administration of the bankrupt estate.'"

or

could

I.
d

(b) Application of the Law to the Facts
Appellants

argue that the Bankruptcy court did not have

subject matter jurisdiction over the claims asserted in the removed

state court action because those claims were not core proceedings
since they were "predicated on state law claims of negligence, and
have nothing to do with the Bankruptcy

Appellants argue

that the claims asserted in the removed state court action are not
related to Neely's bankruptcy estate because
the taxes which are subject of the claims against
Appellees are not being paid by the estate and do not
have any affect on the administration of the bankruptcy
estate, but do have a direct impact on Appellants, in
that since the subject taxes were not discharged in
Bankruptcy Case No. 96-20413, as represented by
Appellees, Appellants will now be required to pay same to
the IRS .42
In support of this argument Appellants cite a number of cases in
which claims based on state law were filed in state court, removed
to bankruptcy court, and then remanded to state court on equitable
grounds.

McCratic v. Bristol-Mevers Ssuibb and Co., 183
See e . ~ . ,

B.R. 113 (N.D. Tex. 1995), and In re Merrv-Go-Round Enterprises,
Inc., 222 B.R. 254 (D.Md. 1998).
Appellants' argument that the claims asserted in the removed
state court action were not related to Neelyfs bankruptcy case has
no merit because Neely's 2004 bankruptcy case was undisputedly open
when on December 14, 2011, the removed action was filed in state
court, and for the reasons stated in

§

III.A.2, below, the court

concludes that the Bankruptcy Court did not err by finding that the

41~mended
Brief for Appellants, Docket Entry No. 27, p. 16.

421d. 17-18.
at

negligence claims asserted in the removed action belonged to
Neely' s bankruptcy

estate.

Therefore, if Appellants were to

prevail on those claims, the claims could conceivably have enriched
Neelyfs bankruptcy estate and impacted the allocation of property
among his creditors.

Accordingly, the claims asserted in the

removed action were at least "related to" Neely's bankruptcy case.
See
- Lone Star Fund, 594 F.3d at 386.

The cases that Appellants

cite in support of their argument that the Bankruptcy Court erred
by denying their motions to remand are inapposite because they are
cases that concern permissive remand under 28 U.S.C.

§

1452(b)

which allows courts to remand claims "on any equitable ground,"
and/or abstention under 28 U. S.C. 5 1334 (c).

Appellants made no

attempt before the Bankruptcy Court or before this court to show
that factors courts consider in deciding motions to remand for
their reasons warranted remand in this case.
Nor did the Bankruptcy Court err by stating, " [tlhis is a core
p r ~ c e e d i n g , "because Neely, as a Chapter 7 debtor, was under a
~~
continuing duty to disclose claims that belonged to his bankruptcy
estate,

see

11 U.S.C.

§

521(a) (1)(B)(1) and Kane v. National Union

Fire Ins. Co., 535 F.3d 380, 384-85 (5th Cir. 2008), and standing
to assert those claims lay exclusively with Neelyfs trustee.
11 U.S.C.

§

323.

See

See also In re Seven Seas Petroleum, Inc., 522

430rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 1.

F.3d 575, 584 (5th Cir. 2008).

Proceedings to determine whether a

cause of action is an asset of a bankruptcy estate that the debtor
should have disclosed are core proceedings over which Bankruptcy
Courts have jurisdiction because they can arise only in the context
of bankruptcy cases.

28 U.S.C.

§

157(b)(2); In re Adams, 481

B.R. 854, 856 (Bkrtcy. N.D. Miss. 2012) (finding that question of
whether a state law claim that was "clearly a non-core proceeding"
should have been disclosed as an asset of the debtor's bankruptcy
estate was a core proceeding under 28 U.S.C.

§

157 (b)(2)(A),(E),

4
and (0)). 4

2.

The Bankruptcv Court Did Not Err bv Findinq that the
Claims Allesed in Removed State Court Action Belonaed to
Neelvfs Bankruptcv Estate

In the August 29, 2012, Order the Bankruptcy Court found that
the negligence claims asserted in the removed state court action
belonged to Neelyfs bankruptcy estate because they arose before
Neely filed his Chapter 7 petition on October 19, 2004:
Neely testified that he did not schedule the cause of
action against Trippon because it was not property of the
bankruptcy estate.
However, the evidence shows that
Neely' s alleged cause of action arose prepetition, as it
is based on Tripponfs alleged failure to correctly advise
Neely of the proper date to file his [I9961 bankruptcy
petition. The Court finds that the alleged cause of

44~one
of the parties have raised any concerns about the
applicability of the United States Supreme Court decision in Stern
v. Marshall, 131 S.Ct. 2594 (2011).

action was property of the bankruptcy estate because it
arose prepetition. 4 5
Appellants argue that the Bankruptcy Court's finding that the
negligence claims asserted in the removed state court action were
property of Neely's bankruptcy estate was in error because, "[ilt
was not until about April of 2010 that George discovered through a
telephone conversation with Carr, that Carr and Trippon knew that
the taxes scheduled in Bankruptcy No. 96-20413 were not discharged
because Trippon and Company had miscalculated the dates applicable
to such." 4 6

Appellants argue that pursuant to the discovery rule

recognized by Texas law, "their claims against Appellees did not
accrue until April 2010, at the earliest, [and therefore], they did
not exist at the filing of the bankruptcy petition by George in
October 2004. "47

The question of whether the negligence claims

asserted in the removed action were property of Appellants or
property of Neely's bankruptcy estate requires interpretation and
application of 11 U.S.C.

§

541 and is, therefore, a question of law

that the court reviews de novo.

See In re Seven Seas, 522 F.3d at

583 ("Whether a specific cause of action belongs to a bankruptcy
estate is

. . .

a matter of law that we decide by reference to the

facial allegations in the complaint.").

450rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 3.
46~rnended
Brief for Appellants, Docket Entry No. 27, p. 14.

(a) Applicable Law
Filing a petition in bankruptcy commences a case and creates
an estate.

11 U.S.C.

§

541 (a).

See also In re Swift, 129 F.3d

792, 795 (5th Cir. 1997). The estate in bankruptcy is comprised of
all the property listed under

§

equitable

debtor

interests

of

the

commencement of the case."

541(a) including "all legal or

11 U.S .C.

in
§

property

541 (a)(1).

as

of

the

"The phrase

'all legal or equitable interests of the debtor in property' has
been construed broadly, and includes 'rights of action' such as
claims based on state or federal law."

In re Seven Seas, 522 F.3d

at 584. A debtor's rights in property, such as a cause of action,
are determined according to applicable state law.

In re Swift, 129

F.3d at 795 (citing Butner v. United States, 99 S.Ct. 914, 918
(1979) ("Property interests are created and defined by
law.")).

state

See also Douslas v. Delp, 987 S.W.2d 879, 883 (Tex. 1999)

("Courts look to state law to characterize the property rights in
the assets of a bankrupt's estate.").

The parties do not dispute

that Texas law governs the state-law claims at issue.
Under Texas law "whenever one person may sue another person a
cause of action has accrued."
Lulins Oil

&

In re Swift, 129 F.3d at 795 (citing

Gas Co. v. Humble Oil

721 (Tex. 1946)).

&

Refinins Co., 191 S.W.2d 716,

"Generally, accrual occurs on the date 'the

plaintiff first becomes entitled to sue the defendant based upon a
legal wrong attributed to the latter,' even if the plaintiff is
unaware of the injury." Vausht v. Showa Denko K.K., 107 F.3d 1137,
1140 (5th Cir.), cert. denied, 118 S.Ct. 67 (1997) (quoting Zidell
v. Bird, 692 S.W.2d 550, 554 (Tex.App.-Austin 1985, no writ) )

.

also S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996) ("a cause of action
accrues when a wrongful act causes some legal injury, even if the
fact of injury is not discovered until later, and even if all
resulting damages have not yet occurred")

.

The claims that Appellants asserted against Appellees in the
removed state court action are claims for negligence arising from
professional malpractice. "A claim for professional malpractice is
based in negligence." Deloitte

&

Touche v. Weller, 976 S.W.2d 212,

215 (Tex. App.-Amarillo 1998, pet. denied), cert. denied, 119 S.Ct.
1765 (1999) (citing Cossrove v. Grimes, 774 S.W.2d 662, 664 (Tex.
1989)).

In order to state a negligence claim under Texas law, a

plaintiff must allege

(1) a legal duty owed by one person to

another; (2) a breach of that duty; and (3) damages proximately
resulting from the breach.

Greater Houston Transportation Co. v.

Phillips, 801 S.W.2d 523, 525 (Tex. 1990).
in any negligence case is duty.

The threshold inquiry

I . Whether a legal duty exists
d

is a question of law for the court to decide from the facts
surrounding the occurrence in question.

I.
d

injury is an element of a negligence claim,

"Because actual
'[aln action for

negligence

cannot

be

therefrom. ' " Deloitte

maintained
&

unless

some

damages

result

Touche, 976 S.W.2d at 215 (quoting Johnson

v. Sovereiqn Camp, W.O.W., 83 S.W.2d 605, 608 (Tex. 1935), rev'd in
part on other srounds, Doctors Hospital Facilities v. Fifth Court
of Appeals, 750 S.W.2d 177 (Tex. 1988)).

"It has also been the

rule that a cause of action only accrues when facts come into
existence supporting each element of the tort."

I . (citing Murray
d

v. San Jacinto Aqencv, Inc., 800 S.W.2d 826, 828 (Tex. 1990) )

.

(b) Application of the Law to the Facts
(1) Date Neely Discovered Alleged Negligence Is
Not Relevant For Determining When Cause of
Action Accrued for Purposes of § 541(a)

Appellants argue that the malpractice claims alleged in the
removed action were not assets of Neely's bankruptcy estate because
Neely did not discover that Trippon had negligently miscalculated
the date for filing his 1996 bankruptcy petition until April of
2010 when Carr disclosed the miscalculation
telephone conversation.

to him during a

This argument is foreclosed by the Fifth

Circuit's decision in In re Swift, 129 F.3d at 792.

In that case

the Fifth Circuit stated that "[dliscovery is relevant to the
determination of when the statute of limitations begins to run, but
it is not an element necessary for the cause of action to accrue
for purposes beyond the statute of limitation."

I . at 798. The
d

Fifth Circuit explained that where, as here, the court is

determining when the causes of action accrued for
purposes of ownership in a bankruptcy proceeding[, t]he
time of discovery of the injury is not relevant to this
inquiry. A cause of action can accrue for ownership
purposes before the statute of limitations for that cause
of action has begun to run. Our focus, then, is upon the
moment the injury occurred.
Id.
-

The Fifth Circuit acknowledged that the question of when a

cause of action accrues under Texas law is often confused with the
question of when the statute of limitations begins to run.
Fifth Circuit explained that
[tlhe basic problem is that the issue of accrual of a
cause of action rarely occurs apart from the issue of
when the statute of limitations begins to run for a
particular cause of action. These are two separate and
distinct issues aimed at very different problems.
The accrual of a cause of action is a concept
closely tied to the fundamental purpose of a cause of
action - to make an injured party whole. Damages, then,
are a prerequisite to a cause of action.
Without
damages, there is no injury to remedy.
The purpose of statutes of limitation is different:
they bar the litigation of stale claims at a time removed
from when the pertinent events occurred. The concept of
accrual is important to the statute of limitations
because accrual sets the clock in motion.
But the
running of the statute of limitations is influenced by
more than just the concept of accrual.
In this
connection, to avoid harsh and unfair consequences that
may result from the premature running of the statute of
limitations, Texas adopted the "discovery" rule. Under
this rule, the statute of limitations does not begin to
run until the injured party "discovers" or with exercise
of reasonable care and diligence should have discovered
that a particular injury has occurred. The result is
that the statute of limitations may begin to run on a
date other than that on which the suit could first be
maintained.
A classic example illustrates this.
Consider a case of medical malpractice in which the
treating physician has left a dangerous metal instrument
inside the body of his patient. At the time the doctor

The

finishes the surgery, the doctor has completed a tort.
He has violated a legal duty owed to the patient, and the
patient was injured by that violation. If the patient
instituted suit at this moment, his suit would be viable.
The statute of limitations has not begun to run, however.
Under the discovery rule, the statute of limitations is
tolled until the patient either discovers or should have
discovered that an injury has occurred. This example
shows that the dates of accrual and the start of the
running of the statute of limitations may vary greatly.
Unfortunately, many cases applying the principles of the
discovery rule are written in terms of accrual.

I .at 796.
d
Thus, although discovery of a legal injury is relevant to
determination of when the statute of limitations begins to run,
discovery

legal injury

not relevant

determination

when a cause of action accrues for purposes of determining if a
cause of action is property of a bankruptcy estate under

§

541(a).

I . In the latter situation, "the focus . . . is upon the moment
d
the injury occurred."

I . at 798.
d

Accordingly, Appellantsf

argument that the negligence claims alleged in the removed action
are not assets of Neely's bankruptcy estate because those claims
did

not

accrue

until April

of

2010 when

Neely

contends he

discovered that Trippon negligently miscalculated the date for
filing his 1996 bankruptcy has no merit because the date that Neely
discovered the alleged negligence is not relevant for determining
whether he possessed a property interest in those claims when he
commenced his bankruptcy case on October 19, 2004.

(2) Negligence Claims Accrued for Purposes of
S 541 (a) Before Neely Filed Bankruptcy in 2004

Appellants argued to the Bankruptcy Court that the negligence
claims asserted in the removed action did not belong to Neely's
2004 bankruptcy estate because Neely's liability for taxes that
were scheduled but not discharged in his 1996 bankruptcy did not
become final until December 14, 2009, when the district court
dismissed

the

adversary

proceeding

that

Neely

filed

seeking

declaratory judgment that the taxes had been discharged in his 1996
bankr~ptcy.~' Appellants argued that Neely suffered no legally
cognizable injury until long after his bankruptcy case commenced on
October 19, 2004.4y
Under Texas law, the question of when a plaintiff has suffered
a legally-cognizable injury depends on the acts complained of:
If the act is of itself not unlawful in th[e sense of
constituting legally cognizable injury in and of
itself], . . . and plaintiff sues to recover damages
subsequently accruing from, and consequent on, the act,
the cause of action accrues, and the statute begins to
run, when, and only when, the damages are sustained; and
this is true although at the time the act is done it is
apparent that injury will inevitably result.

If, however, the act of which the injury is the natural
sequence is of itself a legal injury to plaintiff, a
completed wrong, the cause of action accrues and the
statute begins to run from the time the act is committed,
even where little, if any, actual damage occurs
immediately on commission of the tort.

at 21 and 24.

48&

4

y

at ~ 19.

In re Swift, 129 F.3d at 797 (quoting Atkins v. Crosland, 417
S.W.2d 150 (Tex.1967)).

In Atkins, 417 S.W.2d at 153, the Texas

Supreme Court held that a malpractice action against an accountant
for negligent preparation of tax returns did not accrue until the
IRS assessed a tax deficiency because the act complained of

-

the

accountantfs use of the cash method, as opposed to the accrual
method, of accounting

-

was not in itself an act that caused legal

injury absent some additional act.

The Court explained that the

subsequent assessment of a tax-deficiency constituted the legal
injury that provided the plaintiff the right to sue.

I . The
d

Fifth Circuit found the facts at issue in Atkins distinguishable
from those at issue in Swift.

In re Swift, 129 F.3d at 798-801.

In Swift the debtor was an insurance agent who participated in
a Keogh retirement plan administered by State Farm.

In 1986

Congress substantially revised the federal tax code, but as of
February 1990, State Farm had not amended its Keogh plan to comply
with the revisions.

In February of 1990 Swift contemplated filing

bankruptcy, but fearing that his Keogh plan would not qualify as
exempt property, he converted his Keogh plan into a self-directed
Individual Retirement Account (IRA). On March 1, 1990, Swift filed
a voluntary petition under Chapter 7, and asserted that his IRA was
exempt.

Two creditors objected.

The bankruptcy court found the

IRA was not exempt and was, therefore, part of Swift's

estate

available for distribution to his creditors. In re Swift, 129 F.3d

at 794.

Swift filed suit against State Farm in state court

alleging that State Farm was liable for the lost exemption for his
IRA under theories of negligence and breach of fiduciary duty.

I.
d

at 795. Reasoning that Swift suffered at least one set of damages
consisting of lost tax advantages at the moment he converted his
Keogh retirement plan to the defective IRA, the Fifth Circuit held
that "Swift suffered damage sufficient to give rise to the current
causes of action at the time he converted his Keogh plan to an IRA
in 1990."

- at 798.
Id.

The Fifth Circuit explained that the

irreversible harm element of the claims against State Farm occurred
pre-petition because
[dlamages can also arise from acts of negligence that
result in the taxpayer owing additional tax liabilities
that would not be owed in the absence of the negligence.
No assessment for this liability is necessary because,
under the Internal Revenue code, taxes are owed and
payable to the IRS at a given time. A cause of action
for this type of negligence, then, accrues on the date
that the tax liability is owned to the IRS. The present
case falls in this category. But for the negligence of
State Farm, Swift would have no tax liability arising
from his retirement plan.
That is, without the
negligence of State Farm, the gains on Swift's Keogh plan
and the IRA would accumulate tax free, and Swift's
contributions to the plan would be tax deductible.
Because the Keogh plan was defective, however, Swift
incurred an additional liability to the IRS due to the
taxable nature of the income from the Keogh plan and the
IRA. Swift incurred this liability even if he did not
know or discover that he owned additional taxes.
This
is a legal injury that gave rise to a cause of action at
least by the time he converted his Keogh plan into the
defective IRA. Even though the IRS has not assessed a
deficiency for this liability, Swift was injured. We
shall not find a lack of injury merely because the
taxpayer may be able to escape liability by continuing to
violate the tax laws even if the violation is

unintentional and undiscovered. The amount, if any, that
Swift ultimately pays to the IRS is relevant only in the
computation of damages.
Id. at 799-800. Because the claims against State Farm accrued pre-

p

petition, the Fifth Circuit held that they were
of Swift's bankruptcy estate.
In

the

Original

§

541(a) property

I . at 798 n. 35, and 800-801.
d

Petition

filed

in

the

removed

action

Appellants alleged:
Trippon and Company were George and Cindyfs tax
accounting firm for many years.
Trippon and Company
prepared all of Georgefs tax returns during the 1990's
and prepared those for Cindy after she married George in
1998. George consulted Trippon and Company, in their
professional capacity as an accountant/tax expert, with
respect to discharging tax liabilities prior to 1997 in
bankruptcy. Trippon was to calculate the days necessary
under the Tax Code and all other applicable law for
George's tax liability to be dischargeable prior to the
filing of George's Bankruptcy Petition [in 1996 in the
Victoria Division of the Southern District of Texas].
This calculation included, among other factors, the time
necessary for the subject income tax returns to be on
file with the IRS. Trippon and Company had been Georgefs
tax CPAfs during his earlier [ , i .e., pre-19961 bankruptcy
which was dismissed by agreement. Trippon and Company
calculated said time parameters and told George that the
required time had accrued and that he should file a
Chapter 7 Bankruptcy Petition, which he did and scheduled
the said income tax liability as a dischargeable debt.
After George filed his bankruptcy petition, he received
a discharge order. Trippon and Company told George and
Cindy that the subject income tax liability was
discharged and
that
he
no
longer
owed
same.
Subsequently, George learned that Trippon and Company had
miscalculated the dates for his bankruptcy filing and the
income tax liability had not been discharged. Trippon
and Company, along with Carr, became aware of their
negligence in calculating the dates and that George still
owned the tax liability and concealed the true facts from
him. Eventually, Cindy lost her homestead in Rosenberg,

Texas worth at least $500,000.00 due to the failure of
Trippon, Company to tell her of their negligen~e.~'
The allegations in the Original Petition that Appellants filed
in state court show that the negligent acts of malpractice about
which they complained occurred prior to 1997 when Trippon allegedly
miscalculated the date on which Neely filed his 1996 bankruptcy
petiti~n.~'
The allegations in the Original Petition also show that
facts supporting each element of the negligence claims asserted in
the removed action came into existence before Neely filed his
Chapter 7 petition on October 19, 2004:

Neely employed Trippon as

his accountant in connection with a bankruptcy petition that he
filed in 1996; Trippon owed Neely a legal duty with respect to the
work he performed for the bankruptcy

filed in 1996; Trippon

breached his duty to Neely in connection with the 1996 bankruptcy
by miscalculating the date that bankruptcy petition was filed and
hiding that negligence from him; Neely accepted Trippon' s advice
and filed the 1996 bankruptcy on the date Trippon advised and
sustained damages because Trippon's miscalculation of the filing
date made the taxes scheduled therein ineligible for discharge.

50~laintiff's
Original Petition, Docket Entry No. 8-5, pp. 2-3.
5 1 ~the show cause hearing held on June 20, 2012, George Neely
t
testified that "the taxes that were scheduled in the '96 Victoria
bankruptcy should have been discharged. And they were not, because
the '96 bankruptcy in Victoria was not timely filed by thirty days.
Mr. Trippon miscalculated the date for filing those. That is why
he is being sued." Transcript of June 20, 2012, Show Cause Hearing,
Docket Entry Nos. 23-9 and 29-2, p. 34:4-8.

See Murphv v. Campbell, 964 S.W.2d 265, 270 (Tex. 1997) ("A person
suffers legal injury from faulty professional advice when the
advice is taken.").
The acts about which Appellants complained are not simply
erroneous

tactical

decisions

like

the

decision

to

use

cash

accounting instead of accrual accounting at issue in Atkins, 417
S.W.2d at 153.

Appellantsf allegations that Trippon failed to

accurately calculate the date to file Neely's 1996 bankruptcy so
that Neelyfs tax debt would be discharged, and that Appellees
failed to disclose Tripponfs negligence when they learned of it,
describe a situation analogous to the facts at issue in Swift where
but for State Farm's negligence the debtor would not have had any
tax

liability

arising

from his

retirement plan,

and

to

the

hypothetical situation where, but for the surgeon's negligence in
leaving a medical instrument in his patient's body, no injury would
have occurred.

As with State Farm's negligent failure to revise

its retirement plan, and the hypothetical surgeon's

negligent

failure to remove a dangerous metal instrument from inside his
patientfs body,

the acts about which Appellants

miscalculating the filing date for Neely's
concealing

that

miscalculation

from

Neely

complained -

1996 bankruptcy and
-

are

acts

that

constituted legally cognizable injury even if Neely did not know
about the miscalculation because that miscalculation precluded tax
liabilities scheduled in his 1996 bankruptcy from being discharged.

See In re Swift, 129 F.3d at 800 ("Swift incurred

. . .

liability

even if he did not know or discover that he owed additional taxes.
This is a legal injury that gave rise to a cause of action at least
by the time he converted his Keogh plan into the defective IRA.").
Accordingly,

the court concludes that Neely

suffered legally

cognizable injury when he accepted Tripponfs advice and filed the
1996 bankruptcy petition on the miscalculated date because filing
on that date meant that taxes scheduled in that bankruptcy were not
eligible for discharge.

Murphv, 964 S.W.2d at 270 ("A person

suffers legal injury from faulty professional advice when the
advice is taken.").
Alternatively, the court concludes that the latest possible
date for Neely to have suffered legally cognizable injury from the
miscalculated filing date for his 1996 bankruptcy was the date or
dates on which he received notice of deficiencies stemming from
taxes that were not discharged in his 1996 bankruptcy. See Atkins,

417 S.W.2d at 150. Because Neely scheduled these tax deficiencies
in his 2004 bankruptcy petition, the date on which Neely received
notice of deficiencies stemming from taxes that were not discharged
in his 1996 bankruptcy had to have occurred before Neely commenced
his 2004 bankruptcy case. The courtfs conclusion that Neely had to
have received notice of deficiencies stemming from taxes that were
not discharged in his 1996 bankruptcy before Neely commenced his
2004 bankruptcy case is corroborated by assertions contained in the

demand letter that Neely sent to Trippon on June 18, 2010, which
was admitted into evidence at the Bankruptcy Courtfs March 22,
hearing,5 2 and

description

the evidence

presented at the June 20, 2012, in the brief filed with this court.
In the demand letter that Neely sent to Trippon on June 18,
2012, Neely stated:

. . . My claim arises in connection with your
preparation of several income tax returns and the filing
of same and advising me and my bankruptcy attorney that
the tax returns had been on file the required period of
time so as to discharge the taxes, penalties and interest
due in connection with the income tax returns in a
Chapter 7 bankruptcy proceeding filed by me in Victoria,
Texas in approximately 1997. For several years after the
Chapter 7 Discharge order received by me from the
Victoria Bankruptcy Court you continued to advise me in
connection with my financial affairs that the income
taxes scheduled in the 1997 bankruptcy case in Victoria,
Texas, were no longer owed by me.
I again conferred with you in October of 2004 in
connection with you and Bill Carr regarding my financial
situation, at which time both you and he advised me to
file another Chapter 7 Bankruptcy proceeding. I did so
and eventually filed an adversary against the IRS to
confirm the discharge of approximately $300,000.00 in
taxes, penalty and interest for the years covered in the
1997 Victoria, Texas Bankruptcy proceeding.
The
Bankruptcy Court in Houston, Texas entered a Summary
Judgment that the 1997 bankruptcy case filed by me in
Victoria, Texas did not discharge the taxes, interest and
penalties you were retained to handle because the income
tax returns were not on file the required period of time
to effect a discharge of the taxes, penalties and
interest owed in connection therewith. . .

5 2 ~ o ~ kEntry No. 8-24, pp. 3-4. See also Transcript of March
et
22, 2012 hearing, Docket Entry Nos. 8-27, 22-6, 29-1, p. 11:1-4,
and Exhibit 1 thereto. See also Docket Entry No. 17-1 in Adversary
11-03637, pp. 1-2.

. .

. But for your negligence in the handling of the

Victoria Bankruptcy income tax matters, and your
subsequent advice, I would not have needed to file the
2004 Bankruptcy proceeding as you and Bill Car advised me
to do and would not have experienced the severe financial
losses as a proximate result thereof.53
In the brief that Appellants filed in this court, Appellants state
that the evidence presented at the June 20, 2012, hearing
fairly and reasonably established that Appellees had
prepared all of the tax returns for George Neely that
were scheduled in the Victoria Bankruptcy; that Appellees
notified him in late 2003 or early 2004 that they were
receiving notices from the IRS about taxes being due
which had been discharged in the Victoria B a n k r ~ p t c y . ~ ~
Like the Original Petition that Appellants
removed state court action, statements contained
letter that Neely
Appellantsr

own

sent to Trippon in June

description

of

the

facts

filed in the
both the demand

of

2010, and

presented

to

in
the

Bankruptcy Court at the June 20, 2012, hearing establish that Neely
was aware of facts supporting each element of the negligence claims
asserted in the removed state court action before he filed his
Chapter 7 petition on October 19, 2004:
employed

Trippon

his

accountant

Neely knew that he had
connection

with

the

bankruptcy petition that he filed in 1996; Neely knew that Trippon
owed him a legal duty with respect to the work performed for the
1996 bankruptcy; Neely accepted Trippon's advice and filed the 1996

54~mended
Brief for Appellants, Docket Entry No. 27, pp. 19-20
(emphasis added).

bankruptcy on the advised date and sustained damages because taxes
scheduled therein were not discharged.

See Murphy, 964 S.W.2d at

270.
To the extent that allegations in the Appellantsf Original
Petition that Trippon breached his duty to them in connection with
Neelyfs 1996 bankruptcy not only by miscalculating the date for
filing

the

bankruptcy

petition,

but

also

by

hiding

that

miscalculation from them are intended to allege that Trippon
fraudulently concealed his negligence, such a claim has no merit.
The doctrine of fraudulent concealment provides that where a
defendant is under a duty to make a disclosure, but fraudulently
conceals the existence of a cause of action from the party to whom
it belongs, the defendant is estopped from relying on the defense
of limitations until the party learns of the right of action or
should have learned of it through the exercise of reasonable
diligence.

See Ponder v. Brice

&

Mankoff, 889 S.W.2d 637, 645

(Tex.App.-Houston [14th Dist.] 1994, writ denied) (citing Borderlon
v. Peck, 661 S.W.2d 907, 908 (Tex. 1983)).

The plaintiff must

exercise reasonable diligence to discover what has been hidden from
him by the defendant and the period of tolling may not extend
beyond the time the plaintiff actually acquired knowledge of the
facts or should have acquired such knowledge by the exercise of
reasonable diligence. Id. See also Arabian Shield Development Co.
v.

Hunt,

808

S.W.2d 577,

584-85

(Tex.App.-Dallas 1991, writ

denied); Leonard v. Eskew, 731 S.W.2d 124, 128-29 (Tex.App.-Austin
1987, writ ref' d n.r . e. )

.

Appellants alleged that Trippon hid the fact of his negligence
from them and argued that Neely did not discover that Trippon had
negligently miscalculated the date for filing his 1996 bankruptcy
petition until April of 2010 when Carr disclosed the miscalculation
to him during a telephone conversation. The Bankruptcy Court found
Neelyfs testimony on this issue not credible, but even assuming
that Neely truthfully told the Bankruptcy Court that he did not
learn that Trippon had miscalculated the date for filing the 1996
bankruptcy until April of 2010, his claims against Trippon would
still be time barred because " [tlhe statutory period does not await
a plaintiff's

leisurely discovery of the full details of the

alleged [claim]." Humphrev v. J.B. Land Co., 478 F.Supp. 770, 772
(S.D. Tex. 1979) .

Since as evidenced by Neelyfs 2004 bankruptcy

filing, the demand letter that Neely sent Trippon in June of 2010,
and statements contained in Appellantsf brief to this court, Neely
knew that the IRS had sent Trippon notice of deficiencies for taxes
that had been scheduled in his 1996 bankruptcy before he filed his
2004 bankruptcy, Neely knew facts that either alerted him to the
claims asserted against Trippon, or should have alerted him to
those claims with the exercise of reasonable diligence.

See

Ponder, 889 S.W.2d at 645; Arabian Shield, 808 S.W.2d at 585 ("Once

the plaintiff knows or should know of the deceit, reliance is no
longer reasonable, and the tolling effect ends.").

(c) Conclusions
Regardless of whether Neely suffered actual injury when the
1996 bankruptcy petition was filed on February 2, 1996,55when the
discharge that excluded the scheduled taxes was granted on June 4,
1 9 9 6 , ~ ~ when Neely received notice of deficiencies arising from
or
the failure of taxes scheduled in the 1996 bankruptcy to have been
discharged, the Bankruptcy Court did not err in finding that
the evidence shows that Neelyfs alleged cause of action
arose prepetition, as it is based on Trippon's alleged
failure to correctly advise Neely of the proper date to
file his bankruptcy petition. The Court finds that the
alleged cause of action was property of the bankruptcy
estate because it arose p r e p e t i t i ~ n . ~ ~

5 5 ~ e Docket Report for Bankruptcy Petition # 96-20413, filed
e
in the Southern District of Texas (Victoria Division), Exhibit 1 to
United States of America's Cross-Motion for Summary Judgment and
Response to Plaintiff/Debtorfs Motion for Summary Judgment, Docket
Entry No. 26, filed in Adversary No. 08-3456, Neely v. Internal
Revenue Service, on April 24, 2009.

570rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 3. See also Docket Entry Nos. 2320 and 26-5, p. 3.

3.

The Bankruptcy Court Did Not Err bv Failinq to Remand
Claims Asserted bv Cindy Neelv

Asserting that Cindy D. Neely is a nondebtor, Appellants argue
that "the bankruptcy court has no subject matter jurisdiction over
her claims against Appellees and Carr, which must be remanded to
state court. "58

Appellants argue that "in the bankruptcy courtfs

order of August 29, 2012, nothing is found by the bankruptcy court
that would constitute a basis for applying any estoppel theory
against Appellant Cindy Neely to prevent her from asserting her
claims against

appellee^."^^

Appellees respond that:

Cindy Neely did not appear at any of the hearings and .
. . since Neely is not a practicing attorney, [George
Neely] could not represent her. Cindy Neely put on no
evidence whatsoever. Moreover, all of her claims were
community property and as such were property of the
bankruptcy estate.
See 11 U.S.C. § 541.
Since her
claims were also property of the bankruptcy estate, they
were properly adjudicated in the Bankruptcy C ~ u r t . ~ '

(a) Applicable Law
Under the Bankruptcy Code a bankruptcy estate consists of "all
interests of the debtor and the debtor's

spouse in community

property as of the commencement of the case that is

. . .

under the

sole, equal, or joint management or control of the debtor."
U.S.C.

§

541 (a)(2)(A).

11

Under Texas law, marital property is

58~mended
Brief for Appellants, Docket Entry No. 27, p. 18.

591d. 19.
at
60~rief
for Appellees, Docket Entry No. 29, pp. 17-18.
37

classified as either separate property or community property.
Separate property includes all property a person acquires before
marriage, property acquired during marriage by gift, devise, or
descent, and recovery for personal injuries sustained during the
marriage.

See Tex. Const. art. 16,

§

15; Tex. Fam. Code

§

3.001.

Community property is "property, other than separate property,
acquired by
§

either

spouse during marriage."

Tex. Fam. Code

3.002. The characterization of property as separate or community

is determined by the inception of title, i.e., when a party first
has a right of claim to the property by virtue of which title is
finally vested.

Tex. Fam. Code

§

3.404(a); Chavez v. Chavez, 269

S.W.3d 763, 767 (Tex.App.-Dallas 2008, no pet.) .

"Once separate

property character attaches, that character does not change because
community funds are spent to improve the property."

Leiqhton v.

Leiqhton, 921 S.W.2d 365, 367 (Tex.App.-Houston [lst Dist. ] 1996,
no writ).

There is a presumption that property possessed by either

spouse during marriage
§

3.003(a).

is community property.

Tex . Fam. Code

The degree of proof necessary to prove that property

is separate property is "clear and convincing evidence." Tex. Fam.
Code

§

3.003 (b). The characterization of property, if disputed, is

a question of fact.

Scott v. Estate of Scott, 973 S.W.2d 694, 695

(Tex.App.-El Paso 1998, no writ); Winfield v. Renfro, 821 S.W.2d
640, 652 (Tex.App.-Houston [lst Dist. ] 1991, writ denied) .

Texas recognizes both sole-management community property and
joint-management community property.
also Douqlas, 987 S.W.2d at 883.

Tex.Fam. Code 5 3.102.

See

"[Clommunity property is subject

to the joint management, control and disposition of the spouses
unless the spouses provide otherwise by power of attorney in
writing or other agreement."

Jean v. Tvson-Jean, 118 S.W.3d 1, 5

(Tex.App.-Houston [14th Dist.] 2003, pet. denied) (citing Tex.Fam.
Code

§

3.102(c)).

Only

a

debtor's

separate

property,

sole-management community property, and joint-management community
property become part of the bankruptcy estate; the sole-management
community property of a debtor's spouse does not.
541 (a)(2)(A).
mixed

or

See 11 U.S.C.

§

However, if sole-management community property is

combined

with

a

spouse's

sole-management

community

property, then the mixed or combined community property becomes
joint-management community property, unless the spouses provide
otherwise by power of attorney in writing or other agreement. Tex.
Fam. Code

§

Whether
malpractice

3.102 (b); Douslas, 987 S.W.2d at 883.
a

legal cause of action, such as the negligent

claims

at

issue here,

is classified

as

separate

property, joint-management community property, or sole-management
community property depends on the nature of the injury asserted.
See Douslas, 987 S.W.2d at 883; Jean, 118 S.W.3d at 5.

See also

Graham v. Franco, 488 S.W.2d 390, 396-97 (Tex. 1972) (classifying
damages as community or separate property based on whether injury

was to the individual spouse, such as pain and suffering, or
ultimately to the marital community, such as loss of earning
capacity).

"When different kinds of damages are claimed in a

single cause of action, we look to the nature of each injury when
classifying those damages as community or separate property."
Douslas, 987 S.W.2d at 883.

(b) Application of the Law to the Facts
The Original Petition that Appellants filed in the removed
state court action shows that Cindy Neely had no interest in the
malpractice claims alleged therein because they were George's
separate property, and that if Cindy did have an interest in them,
that interest was also property of the Bankruptcy estate because
that interest was community property under the sole, equal or joint
management of the debtor, George Neely. 11 U. S.C.

§

541 (a)(2)(A).61

The factual allegations in Appellants' Original Petition state

'lsection 541 (a)(2)(A) provides :
(a) The commencement of a case under section 301,
302, or 303 of this title creates an estate. Such
estate is comprised of all the following property,
wherever located and by whomever held:

(2) All interests of the debtor and the debtorfs
spouse in community property as of the commencement
of the case that is --

(A) under
the
sole,
equal,
or
management and control of the debtor.

joint

that Cindy and George Neely married in 1998, but that the acts of
malpractice alleged occurred prior to 1997 when Neely consulted
Trippon in his professional capacity as an accountant/tax expert,
with respect to discharging in bankruptcy tax liabilities incurred
prior to 1997.

Appellants alleged that

Trippon and Company prepared all of Georgefs tax returns
during the 1990's and prepared those for Cindy after she
married George in 1998. George consulted Trippon and
Company,
in
their professional
capacity
as
an
accountant/tax expert, with respect to discharging tax
liabilities prior to 1997 in bankruptcy. Trippon was to
calculate the days necessary under the Tax Code and all
other applicable law for George's tax liability to be
dischargeable prior to the filing of . . . George's
Bankruptcy Petition. Trippon and Company calculated said
time parameters and told George that the required time
had accrued and that he should file a Chapter 7
Bankruptcy Petition, which he did and scheduled the said
income tax liability as a dischargeable debt.
After
George filed his bankruptcy petition, he received a
discharge order. Trippon and Company told George and
Cindy that the subject income tax liability was
discharged
and
that he no
longer owned
same.
Subsequently, George learned that Trippon and Company has
miscalculated the dates for his bankruptcy filing and the
income tax liability had not been discharged. Trippon
and Company, along with Carr, became aware of their
negligence in calculating the dates and that George still
owed the tax liability and concealed the true facts from
him.62
These allegations establish that the negligence claims arise from
advice that Trippon and Company provided to George before he
married Cindy.

Moreover, for the reasons stated in 5 III.A.2,

above, the court has already concluded that George suffered legal

62~laintif s Original Petition, Docket Entry Nos. 8-5 and 22ff
23, pp. 2-3.
41

injury and that his claims against Trippon and Company accrued when
he accepted their advice and filed bankruptcy in 1996.

Because

George's claims accrued before he married Cindy, they were George's
separate property in which Cindy had no interest.
Code

§

See Tex. Fam.

3404(a); Chavez, 269 S.W.3d at 767.

Although Appellants also alleged that Appellees violated a
duty of care owed to George and Cindy, the factual allegations show
that the negligent calculation of the date for filing George's 1996
bankruptcy occurred before Cindy and George were married in 1998,
and the Original Petition filed in state court lacks any factual
allegations that, if true, would show that Appellees violated a
duty of care owed to Cindy by failing to disclose to her that they
negligently calculated the date for filing George's 1996 bankruptcy
which predated her marriage to George. Because the professional's
legal duty arises out of the contract for professional services,
Averitt v.

PriceWaterhouseCoopers LLP,

89 S.W. 3d 330, 334-35

(Tex.App.-Fort Worth 2002, no pet.), it runs only to those who are
in privity with the professional and rely on their professional
advice.

See Federal Deposit Insurance Corporation v. Ernst

&

Younq, 967 F.2d 166, 170 (5th Cir. 1992) (in negligence action
against accounting firm, firm

could not

negligence,

association

because

plaintiff

accounting firm's audit).

be

held

did

liable

not

rely

for
on

Even if Appellants' Original Petition alleges facts that could
be construed to state a claim in which Cindy had an interest, any
such claim would necessarily have arisen after Cindy's marriage to
George and would, therefore, be subject to the presumption that it
was community property.

See Tex. Fam. Code 5 3.003 (b).

Because

community property is subject to the "joint management, control and
disposition of the spouses unless the spouses provide otherwise by
power of attorney in writing or other agreement," Jean, 118 S.W.3d
at 5, absent allegations and/or evidence that any claim in which
Cindy had an interest was either her separate property or her solemanagement community property, Cindy had no claim that would not
have belonged to George's

bankruptcy estate.

See 11 U.S.C.

5 541 (a)(2).

Appellants did not argue to the Bankruptcy Court, and have not
argued to this court, that any of the claims alleged in the removed
action were Cindy's

separate property or her sole management

community property. Since, moreover, Cindy Neely neither attended
nor

participated

in

the

March

22,

2012,

hearing

held

on

Appellants's motions to remand, nor did she attend or participate
in the Show Cause hearing held on June 20, 2012, Appellants
presented no evidence from which the Bankruptcy Court could have
concluded that Trippon's allegedly negligent calculation of the
filing date for George's 1996 bankruptcy damaged Cindy.

These

conclusions

are

corroborated

by

the

following

statements

in

Appellantsr brief to this court:
No evidence was admitted concerning Cindy Neely's
knowledge of her claims against Appellees, which are
different from George Neely' s claims. . . No evidence was
ever admitted or even offered concerning Cindy Neely's
claims which appear to have accrued after January 2010
and pertain to the time period when Appellees were
representing her after her marriage to George Neely in
1998. George Neelyrs claims, however, pertain to the
failure of Appellees to accurately calculate the date on
which to file the Victoria bankruptcy, which predated
Cindyrs marriage to George.63
Accordingly, the Bankruptcy Court did not err by failing to remand
claims asserted by Cindy Neely.

4.

Conclusions

Because

the

Bankruptcy

Court

did

not

err

by

asserting

jurisdiction over the removed state court action, by finding that
the claims asserted in the removed action belonged to Neely's
bankruptcy estate, or by finding that Cindy Neely had no interest
in those claims, the Bankruptcy Court did not err by denying
Appellantsr initial and amended motions to remand.

B.

The Bankruptcy Court Did Not Err by Denying Appellantsr
Notices of Dismissal and Granting Appelleesf Motion to Dismiss

On March 22, 2012, the Bankruptcy Court held a hearing on the
Appellantsr motions to remand and on the Appelleesr motion to

63~mended
Brief for Appellants, Docket Entry No. 27, p. 24.
44

dismiss.

At the conclusion of the hearing the Bankruptcy Court

said, "I am going to grant the Motion to Dismiss with regards to
the Defendants, Mr. Trippon, the Trippon Company CPA and Mr. Carr.

. .

with p r e j ~ d i c e . " ~ ~In the August

29, 2012, Order, the

Bankruptcy Court found that "the lawsuit the Neelysf filed in the
151st Judicial District Court against Trippon, which was removed to
this Court, is barred by

limitation^,"^^ and that "any claims or

potential claims against Trippon were property of the bankruptcy
estate and belonged to the chapter 7 trustee, and the Neelys have
no standing to bring such claims."66

Appellants argue that the

claims asserted in the removed action were not time barred, but do
not dispute that if the claims belonged to Neelyrs bankruptcy
estate, then they lacked standing to assert them.67 Appellees argue
that the Bankruptcy Court correctly dismissed the claims asserted
in the

removed

state court action because Appellants

standing to assert them and they were barred by

lacked

limitation^.^^

64~ranscript March 22, 2012, hearing, Docket Entry Nos. 8of
27, 22-6, and 29-1, p. 15:20-23.
650rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 3. See also Docket Entry Nos. 2320 and 26-5, p. 3.

67~rnended
Brief for Appellants, Docket Entry No. 27, p. 27.
68~rief
for Appellees, Docket Entry No. 29, p. 11.

1.

The Bankruptcy Court Did Not Err by Denyinq Appellantsf
Notices of Dismissal Because Appellants Lacked Standinq

Shortly after Appellees

removed the

state court action,

Appellants each filed a Notice of Dismissal pursuant to Federal
Rule 41 (a)(1).69

Subject to certain exceptions, Rule 41 (a)(I),

allows plaintiffs to voluntarily dismiss an action without a court
order by filing a notice of dismissal any time before an adverse
party serves an answer or a motion for summary judgment, which ever
Fed. R. Civ. P. 41 (a)(1)(A)(i).

occurs first.

Appellees

objected to Appellantsf notices of dismissal by asserting:
Neely has improperly attempted to collect on an asset of
the estate without listing such asset in his schedules,
has attempted to circumvent the Bankruptcy Court by
waiting until they thought that the Bankruptcy was closed
prior to bringing a suit that is time barred on its face.
For these reasons, Defendants object to dismissing the
cause of action without prejudice as alleged in Neelyfs
Motions to Dismiss.
Any dismissal of this adversary
should be with prejudice. 'O
Appellees's Notice of Removal contained the same

argument^.^^

Once a Chapter 7 bankruptcy case exists, the trustee, as the
representative of the bankruptcy estate, is the real party in
interest, and the party with exclusive standing to assert causes of
action belonging to the estate.

11 U.S.C.

§§

323, 541(a)(l).

In

re Seven Seas, 522 F.3d at 584 (citing In re Educators Group Health
-

69~ocket
Entry Nos. 8-6 and 8-8.
'O~efendants James M. Trippon and J.M. Trippon & Company,
C.P.A.'s Motion to Dismiss, Docket Entry No. 8-10, p. 6.
"~otice of Removal, Docket Entry No. 8-3, pp. 1-2 981-5.

Trust

25 F.3d 1281, 1284 (5th Cir. 1984) ("If a claim belongs to

I

the estate, then the bankruptcy trustee has exclusive standing to
assert it." )

.

See also Wieburs v. GTE Southwest Inc., 272 F.3d

302, 306 (5th Cir. 2001) (acknowledging that where "the claims are
property of the bankruptcy estate, the Trustee is the real party in
interest with exclusive standing to assert them").

"[A111 rights

held by the debtor in the asset are extinguished unless the asset
is abandoned" by the trustee to the debtor under 11 U.S.C.
Kane, 535 F.3d at 385. For the reasons stated in

§

§

554.

I11 .A.2, above,

the court has already concluded that the Bankruptcy Court did not
err by finding that the claims Appellantsr asserted in the removed
state court action belonged to Neelyrs bankruptcy estate.

Since

the trustee was the real party in interest, and the party with
exclusive standing to assert claims belonging to the estate, 11
U.S.C.

§

323, 541(a) (I), the Bankruptcy Court did not err by

denying Appellantsf Notices of Dismissal because the Appellants had
no standing either to prosecute the removed action or to dismiss
the removed action once Appellees had removed it to the Bankruptcy
Court.

2.

The Bankrutpcv Court Did Not Err bv Grantins Appelleesf
Motion to Dismiss

Appellants argue that the Bankruptcy Court erred by finding
that the negligence claims asserted in the state court action were
time barred because Appellees produced no evidence that the claims

were time barred, and because Neely testified that he did not
discover Tripponfs malpractice until April of 2010.72 Appellees
argue that the Bankruptcy Court properly found that the malpractice
claims were barred by the applicable statute of

limitation^.'^

(a) Applicable Law
Texas law provides a two-year limitations period for filing a
lawsuit based on negligence arising from accounting malpractice.

See Tex. Civ. Prac.

&

Rem. Code

§

16.003; Murphv, 964 S.W.2d at 270

(holding that a common-law action for accounting malpractice is
subject to

§

16.003 of the Texas Civil Practice

&

Remedies Code,

which provides that suit must be brought not later than two years
after the day the cause of action accrues).

Claims not brought

within two years from the date the cause of action accrues are
barred. Schaefer v. Gulf Coast Resional Blood Center, 10 F.3d 327,
331 (5th Cir. 1994). A cause of action for accounting malpractice
accrues "when a wrongful act causes some legal injury, even if the
fact of injury is not discovered until later, and even if all
resulting damages have not yet occurred."
270.

Murphv, 964 S.W.2d at

See also Vausht, 107 F.3d at 1140, and In re Swift, 129 F.3d

at 798 (recognizing that a plaintiff becomes entitled to commence

mended Brief for Appellants, Docket Entry No. 27, pp. 24,
27.
73~rief
for Appellees, Docket Entry No. 29, pp. 15-17.
48

a lawsuit when a legal wrong is completed even if he remains
unaware of his injury).

A legal injury from faulty accounting

advice occurs when the advice is taken. Murphy, 964 S .W.2d at 27071.

Nevertheless, claims for accounting malpractice are subject

to a discovery rule pursuant to which the statute of limitations
may be tolled thus lengthening the time within which a plaintiff
may file a lawsuit.

I.
d

Under the Texas discovery rule a cause of action may accrue
when the legal wrong is consummated, but the statute of limitations
is tolled until the plaintiff discovers, or through the exercise of
reasonable care and diligence should have discovered, facts giving
rise to a cause of action.

I . See also Swift, 129 F.3d at
d

796-97; Schaefer, 10 F.3d at 331; Vauqht, 107 F.3d at 1140.

Once

a plaintiff has knowledge of facts sufficient to excite inquiry,
which if pursued with reasonable diligence would lead to the
discovery of the injury, he is deemed to have knowledge of the
cause of action as a matter of law.

See Interfirst Bank-Houston

N.A. v. Ouintana Petroleum, 699 S.W.2d 864, 876 (Tex.App.-Houston

[lst Dist.] 1985, writ reffd n.r.e.) .

"Discovery" does not mean

"actual knowledge of the particulars of a cause of action," but
whether the plaintiff has "knowledge of facts which would cause a
reasonable person to diligently make inquiry t o d e t e r m i n e h i s o r
her l e g a l r i g h t s . "

Vauqht, 107 F . 3d at 1141-42. The tolling period

may thus expire and the statute of limitations begin to run before

a plaintiff subjectively learns "details of the evidence by which
to establish his cause of action."

- at
Id.

1140.

In Murphv, 964

S.W.2d at 271, the Texas Supreme Court held that for cases arising
from liability for payment of

federal taxes, the

statute of

limitations begins to run no later than "when the IRS takes a
final, formal position."

(b) Application of the Law to the Facts
At the hearing held on March 22, 2012, Appellees argued that
Neely knew about the deficiencies resulting from the taxes that had
been scheduled but not discharged in his 1996 bankruptcy "way
before he filed the 2004 bankruptcy, certainly in 2005 when the IRS
filed their Proof of Claim in this case."74 Although Neely argued
that "[ilt was not until after [he] filed a[n adversary] suit
against the I R S .
that

. .

and it was --

[he] discovered or was

told

. . .

decided against [him],

that

. . .

Trippon ha[d]

miscalculated the dates,"75 the Bankruptcy Court found "that Neely
knew or should have known of his alleged cause of action against
Trippon no later than the date the I R S filed its proof of claim in

74~ranscript March 22, 2012, hearing, Docket Entry Nos. 8of
27, 22-6, and 29-1, p. 6:7-8.

cause no. 04-44898, October 14, 2005."76

The Bankruptcy Court

explained that
Neely testified that he was unaware of the existence of
the cause of action until the district court affirmed
this Court's grant of summary judgment in favor of the
IRS. The Court finds that George Neely is not a credible
witness and his testimony concerning his alleged cause of
action against Trippon and awareness of its accrual is
not credible.77
Although Appellants continue to argue that Neely did not discover
that Trippon had miscalculated the date

for filing his

1996

bankruptcy until April of 2010, Appellants neither argue nor cite
any evidence from which this court could conclude the Bankruptcy
Court's determination that Neely's testimony on this issue was not
Fed. R. Bankr. P. 8013.

credible was clearly erroneous.
Moreover,

for

reasons

stated in

§

III.A.2 b

2

above, the

evidence before the Bankruptcy Court established not only that the
claims asserted in the removed action accrued for purposes of
§

541(a) of the Bankruptcy Code before Neely's

bankruptcy case

commenced on October 19, 2004, but also that when Neely filed his
bankruptcy petition on October 19, 2004, Neely knew or through the
exercise of reasonable diligence should have discovered facts
giving

rise

to

the

claims

asserted

in

the

removed

action.

Accordingly, the Bankruptcy Court did not err by concluding that

760rder, Exhibit E to Amended Notice of Appeal, Docket Entry
No. 16, p. 5.

"the lawsuit the Neelys' filed in the 151st Judicial District Court
against Trippon, which was removed to this Court, is barred by
limitations.""

3.

Conclusions

Because the Bankruptcy Court did not err by finding that the
negligence claims asserted in the removed state court action were
property of Neely's 2004 bankruptcy estate, and that the real party
in interest and the party with exclusive standing to pursue claims
belonging

to

the bankruptcy

estate was

Neely's

Trustee, the

Bankruptcy Court did not err by denying Appellants' Rule 41 (a)
notices of dismissal.

Because the Bankruptcy Court did not err in

finding that the negligence claims asserted in the removed state
court action were barred by limitations, the Bankruptcy Court did
not err by granting Appellees' motion to dismiss since the pursuit
of those claims would have had little, if any, impact on Neely's
creditors.

Wieburs v. GTE Southwest, Inc., No. 3:98-CV-2057-R,

2002 WL 31156431, at *2-5 (N.D.Tex. Sept. 26, 2002).

In Wieburq,

the Fifth Circuit held that the district court had abused his
discretion by dismissing prepetition claims after finding that a
debtor lacked standing to raise them because the district court
failed to provide an explanation of "why less drastic alternatives
of either allowing an opportunity for ratification by the Trustee,

or joinder of the Trustee, were inappropriate." Wieburq, 272 F.3d
at 309.

On remand the district court explained that dismissal,

rather than substitution of the trustee was appropriate, because

(1) the debtor had not disclosed the claims at issue in her
bankruptcy petition, (2) the debtor had a reasonable time after the
standing issue was raised to obtain joinder, ratification, or
substitution of the trustee but failed to do so, and (3) the impact
of dismissal on the debtor's

creditors was negligible.

See

Wieburq, 2002 WL 31156431, at *2-5. The Fifth Circuit affirmed the
district courtrs decision following remand.

See Wieburs v. GTE

Southwest Inc., 71 Fed.Appx. 440, 2003 WL 21417074, at *2 (5th Cir.
2003) ("Now that we have the court's reasons, we conclude that it
did not abuse its discretion by dismissing the suit.").

Applying

the Wieburq factors to this case, the court concludes that the
Bankruptcy Court did not err by granting Appelleesf motion to
dismiss because Neely failed to disclose those claims to the
Trusteer7'Neely had a reasonable time after the motion to dismiss
was filed to obtain joinder, ratification, or substitution of the
trustee but failed to do so, and dismissal of the negligence claims
asserted in the removed state court action had no impact on Neelyrs
creditors because they were time barred.

79 - Amended Brief for Appellants, Docket Entry No. 27, p. 24
See
(acknowledging that Neely never disclosed their claims to the
trustee).

C.

The Bankruptcy Court Did Not Err by Denying Appellants' Second
Amended Motion to Remand
On April 17, 2012, Appellants filed a second amended motion to

remand in which they argued that their malpractice claims against
Appellees should be remanded because the Trustee abandoned the
estate's interest in them as of March 24, 2012.80

In its Order of

August 29, 2012, the bankruptcy court found " [s]ince the Neelys are
judicially estopped from pursuing the alleged cause of action
against Trippon and the Court previously dismissed the cause of
action with prejudice, the Court concludes that remand is moot."81
Citing Love v. Tvson Foods, Inc., 677 F.3d 258, 261-262 (5th Cir.
2012), the

bankruptcy

court

explained

that

"the

Neelys

are

judicially estopped from pursuing the alleged cause of action
against ~rippon, because
"''
Neely . . . testified that he did not schedule his cause
of action against Trippon after he became aware of it
because he believed that Trippon's attorney would notify
the [Clhapter 7 trustee of the existence of the cause of
action. "Pursuant to the Bankruptcy Code, debtors are
under a continuing duty to disclose all pending and
potential claims." Kane v. National Union Fire Ins. Co.,
535 F.3d 380, 384-385 (5th Cir. 2008); see also 11 U.S.C.
§ 521 (1). The Court finds that it is the debtor's burden
to disclose his assets in his bankruptcy schedules and

'O~ocket Entry No. 22-3.
Adversary No. 11-03637.

See also Docket Entry No. 36 in

"order of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 6.

Neely failed to disclose his alleged cause of action
against Trippon.8 3
Asserting that the Trustee filed his Notice of Intent to
Abandon Property on March 24, 2012, Appellants argued that because
no objection or request for hearing was served on the Trustee
within 14 days thereafter, the malpractice claims were deemed
abandoned, the Trustee's abandonment divested the bankruptcy estate
of any interest in those claims and divested the Bankruptcy Court
of jurisdiction over them.

Thus, asserting that as of March 24,

2012, the malpractice claims belonged to them instead of to Neelyfs
bankruptcy estate, Appellants argue that the Bankruptcy Court erred
by failing to grant their amended motion to remand.84
Appellantsf argument that the Bankruptcy

Court erred by

failing to grant their second amended motion to remand has no merit
because on March 22, 2012, two days before the Trustee filed his
notice of intent to abandon, and almost a month before Appellants
filed their second amended motion to remand, the Bankruptcy Court
dismissed the malpractice claims with prejudice as time barred.85
The Bankruptcy Court's

dismissal of the malpractice claims on

March 22, 2012, extinguished any interest that could have reverted
to the Appellants following the Trustee's

abandonment of those

84~mended
Brief for Appellants, Docket Entry No. 27, pp. 12-13.
85~~hibits
B-D to Amended Notice of Appeal, Docket Entry
No. 16. See also Docket Entry Nos. 8-20 and 26-4.

claims on March 24, 2012. Appellants cite no authority in support
of their contention either that the claims that had been dismissed
almost a month earlier could be remanded when they filed their
second amended motion to remand on April 17, 2012, or that those
claims were abandoned.

See 11 U. S.C. 5 554 (a) (requiring notice

and hearing before Bankruptcy Court can authorize abandonment of an
asset such as the claims asserted in the removed action).

The

Bankruptcy Court did not err by failing to grant Appellants second
amended motion to remand.

D.

T h e B a n k r u p t c y C o u r t D i d N o t E r r by S a n c t i o n i n g G e o r g e N e e l y

Following the Show Cause hearing held on June 20, 2012, the
Bankruptcy Court sanctioned George Neely by ordering him to pay
attorneysf fees to James M. Trippon and J.M. Trippon

&

Company,

C.P.A., in the amount of $14,763.00, and to Mynde Eisen in the
amount of $12,931.00.86

In support of the decision to sanction

Neely, the Bankruptcy Court stated:
The Court finds that Neelyfs lawsuit was groundless and
frivolous and brought for purposes of harassment because
Neely, until he was disbarred in 2008, was a licensed
attorney and Neely knew that the applicable statute of
limitations for his cause of action against Trippon was
2 years. The Court finds that any claims or potential
claims against Trippon were property of the bankruptcy

860rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 15; and Final Judgment, Exhibit F
to Amended Notice of Appeal, Docket Entry No. 16.

estate and belonged to the chapter 7 trustee, and the
Neelys have no standing to bring such claims.87
The Bankruptcy Court also stated that "George Neely has a history
in his bankruptcy

case of vexatious behavior. "88

standard provided

by

Texas Rule

of

Civil

Citing the

Procedure

13, the

Bankruptcy Court followed the Fifth Circuitrs directive in Tompkins
v. Cvr,

202 F.3d

770, 787

(5th Cir.

2000),

to

apply

state

procedural rules when considering sanctions in a removed action.
Appellants argue that the Bankruptcy Court's decision to sanction
Neely was based on an erroneous determination that he violated Rule
13 of the Texas Rules of Civil Procedure by filing a groundless
lawsuit, and that the sanctions imposed on him are excessive and
based on an erroneous view of the law and the e~idence.~'
Appellees
argue that the Bankruptcy Court did not err by imposing monetary
sanctions on ~ e e l y .

1.

Applicable Law

State, not federal, sanction rules "apply to filings in state
court, even if the case is later removed to federal court."
Tompkins, 202 F. 3d at 787. But, once a case is removed to federal

870rder of August 29, 2012, Exhibit E to Amended Notice of
Appeal, Docket Entry No. 16, p. 7.

89~mended
Brief for Appellants, Docket Entry No. 27, pp. 24-30.
'O~rief for Appellees, Docket Entry No. 29, pp. 22-25.

court, filings in that court are governed by Rule 11 of the Federal
Rules of Civil Procedure.

Edwards v. Gen. Motors Corp., 153 F.3d

242, 245 (5th Cir. 1998). Here, the Bankruptcy Court correctly
relied on Rule 13 of the Texas Rules of Civil Procedure when it
considered Appellees' request for sanctions, related to Appellants'
complaint filed in Texas state court.

Imposition of sanctions

under Rule 13 is reviewed for abuse of discretion.

See Low v.

Henrv, 221 S.W.3d 609, 614 (Tex. 2007); Skidmore Enerqv, Inc. v.

KPMG

I

455 F.3d 564, 566 (5th Cir. 2006), cert. denied, 127 S.Ct.

524 (2006).

A court abuses its discretion only if the order is

based on an erroneous assessment of the law or the evidence.
Dolenz v. Boundv, 197 S.W.3d 416, 421 (Tex.App.-Dallas 2006, pet.
denied).

An abuse of discretion occurs when "the court acted

without reference to any guiding rules and principles."

I.
d

(citing Cire v. Cumminss, 134 S.W.3d 835, 838 (Tex. 2004)).
Rule 13 authorizes the imposition of sanctions against an
attorney, a represented party, or both, who filed a pleading that
is

either:

(1)

groundless

and

brought

(2) groundless and brought to harass.

in

faith;

Tex. R. Civ. P. 13.

Rudisell v. Paquette, 89 S.W.3d 233, 236-37
Christi 2002, no pet.).

bad

or

See

(Tex.App.- Corpus

The rule defines "groundless" as having

"no basis in law or fact and not warranted by good faith argument
for the extension, modification, or reversal of existing law."
Tex. R. Civ. P. 13.

"Groundlessness turns on the legal merits of

the claim."

Dike v. Peltier Chevrolet, Inc., 343 S.W.3d 179, 184

(Tex.App.- Texarkana 2011, no pet.).

"To determine if a pleading

was groundless, the trial court uses an objective standard: did the
party and counsel make a reasonable inquiry into the legal and
factual basis of the claim?"

I . (quoting In re United Services.
d

Automobile Association., 76 S.W.3d 112, 116 (Tex.App.-San Antonio
2002, no pet.)). The court must look to the facts available to the
litigant and to the circumstances at the time the suit was filed.

I . Rule 13 requires courts to presume that parties and their
d
counsel file all papers in good faith, and to require the party
seeking sanctions to overcome the presumption.

Tex. R. Civ. P. 13;

GTE Communications Systems Corp. v. Tanner, 856 S.W.2d 725, 731
(Tex. 1993). The party seeking sanctions has the burden of showing
its right to relief.
Brown,

103 S.W.3d

Tanner, 856 S.W.2d at 731; Elkins v. Stotts664,

668

(Tex.App.-Dallas 2003, no pet.).

Sanctions may only be imposed for good cause, the particulars of
which

must be stated in the order.

Rudisell, 89 S.W.3d at 237.

The Texas Rules of Civil Procedure state that when a court orders
sanctions upon finding that a party has violated Rule 13, that
court "shall" order the offending party to pay "the reasonable
expenses incurred in obtaining the order, including attorneysr
fees."

Tex. R. Civ. P. 215.1 (d).

2.

Application of the Law to the Facts
(a) The Bankruptcy Court Did Not Abuse It's Discretion
by Finding that Neely Filed a Groundless Lawsuit

Appellants

argue

that

the

Bankruptcy

Court

abused

its

discretion by ordering sanctions based on its finding that Neely
filed a groundless lawsuit against Appellees because the claims
asserted therein were property of Neely's bankruptcy estate, the
Appellants lacked standing to assert those claims, and because
Neely was a disbarred attorney, who knew that the statute of
limitations for such claims was two years. Appellants argue

that

they "had grounds for their petition in state court, both legal and
factual.

. .

The Bankruptcy Court erroneously found that the claims

against Appellees were time barred.""
Appellees repeatedly informed Neely that he and his wife had
no standing to assert the claims at issue because those claims
belonged to Neely's
were time-barred.

bankruptcy estate, and because those claims
Neely argued that the claims were not time-

barred because until the district court dismissed his appeal of his
adversary against the IRS he did not know that taxes scheduled in
the 1996 bankruptcy had not been discharged, and because Trippon
fraudulently concealed the fact that he had miscalculated the
filing date for Neely's
found that Neely's

1996 bankruptcy.

The Bankruptcy Court

testimony was not credible.

The Bankruptcy

'l~mended Brief for Appellants, Docket Entry No. 27, p. 27.
60

Courtfs finding was not an abuse of discretion because for the
reasons stated in

§

I11 .A.2, above, the court has already concluded

that the evidence before the Bankruptcy Court established that
before he filed his bankruptcy petition on October 19, 2004, Neely
knew that the IRS had sent Trippon notices of deficiencies for
taxes scheduled in his 1996 bankruptcy and that this knowledge was
sufficient either to apprise Neely of the malpractice claims that
he asserted against Trippon in the removed action or with the
exercise reasonable diligence would have apprised Neely of those
claims.

(b) The Bankruptcy Courtfs Award of Attorneys' Fees Was
Not Based on an Erroneous View of the Law or
Evidence
Appellants argue that the Bankruptcy Court erred by ordering
Neely to pay attorneysf fees to James M. Trippon and J.M. Trippon
&

Company, C.P.A., in the amount of $14,763.00 because Appellees'

malpractice

carrier

paid

attorney

Richard

White's

fees

and

expenses, no contract for fees and expenses was introduced whereby
Appellees agreed to pay or paid fees and expenses to White or had
an agreement to reimburse the malpractice carrier for payment of
fees and expenses to White, the billing records submitted in
support of the fee application was a redacted summary that omitted
descriptions of services provided and was prepared from an original

day-timer that was not made available at the hearing.92 Appellants'
argument regarding the reasonableness of White's

fee application

White
has no merit because at the June 20, 2012, Show Cause ~ e a r i n g
presented uncontradicted testimony regarding the reasonableness of
his fees within the context of this case. White's testimony on the
reasonableness of
attorneys'

the

amounts

sought in his

application

for

fees provided sufficient support for the Bankruptcy

Court's

award of fees to Tripp~n.'~ Appellants'

White's

fee application based on redactions has no merit since

White testified that the redactions were
attorney client privilege.

objections to

intended to protect

Accordingly, the court concludes that

the bankruptcy court did not err by ordering Appellants to pay the
fees that White testified were reasonable in this case.
Appellants argue that the Bankruptcy Court erroneously awarded
Mynde Eisen attorneys' fees in the amount of $12,931.00, and that
this award was an abuse of discretion because there is no nexus
between the conduct alleged and what actually occurred and the
sanction

imposed.

Appellants'

argument

regarding

the

reasonableness of Eisen's fee application has no merit because at
the

June

20,

2012,

Show

Cause

Hearing

Eisen

presented

uncontradicted testimony regarding the reasonableness of her fees

93~ranscript June 20, 2012 Show Cause Hearing, Docket Entry
of
Nos. 23-9 and 29-2, pp. 43:6-47:6.

within the context of this case and the standard for awarding
attorneysf fees stated in Johnson v. Georqia Hishwav Express, Inc.,
488 F.2d 714, 717-19 (5th Cir. 1974), overruled on other srounds
b ~ Blanchard v. Berqeron, 109 S .Ct. 939 (1989).
,

Eisen' s testimony

on the reasonableness of the amounts sought in her application for
attorneys'

fees provided sufficient support for the Bankruptcy

Court's award of fees to her:
THE COURT: . . . [Flor purposes of admitting Exhibit 1,
these -- this is your list of expenses that youfre
seeking here, Ms. Eisen?
MS. EISEN:

Right.

THE COURT:
All right. And your testimony is that
they -- the Johnson factors are satisfied by all of your
efforts in this case, as represented by these specific
fees.
MS. EISEN:

These entries, yes, Your Honor.

THE COURT:
Yes. These specific entries. All right,
fine. Then, I will accept that -MS. EISEN:

DO I --

THE COURT:
-- testimony and Exhibit 1 is admitted.
Mr. Neely may respond in detail to that. What was your
question, please? (Defendant's Exhibit 1 admitted.)94
Although the bankruptcy court allowed Neely to respond to Eisenfs
testimony regarding the reasonableness of her fees, Neely has
neither

cited nor

pointed

this

court to

any

such

response.

Accordingly, the court concludes that the bankruptcy court did not

err by o r d e r i n g Appellants t o pay t h e f e e s t h a t Eisen t e s t i f i e d
were r e a s o n a b l e i n t h i s c a s e .

3.

Conclusions

For t h e r e a s o n s s t a t e d i n § I I I . D . 2 ( a ) , t h e Bankruptcy Court
d i d n o t e r r i n f i n d i n g t h a t t h e removed s t a t e c o u r t a c t i o n f i l e d b y
N e e l y was g r o u n d l e s s
harassment.

and f r i v o l o u s and brought

f o r purposes

of

The T e x a s R u l e s o f C i v i l P r o c e d u r e s t a t e t h a t when a

c o u r t f i n d s a p a r t y h a s v i o l a t e d Rule 13, t h a t c o u r t " s h a l l " o r d e r
t h e o f f e n d i n g p a r t y t o pay s a n c t i o n s , which i n c l u d e " t h e r e a s o n a b l e
expenses i n c u r r e d i n o b t a i n i n g t h e o r d e r , i n c l u d i n g a t t o r n e y f e e s . "
Tex. R . C i v . P. 2 1 5 . 1 ( d )
t h e amount o f
George Neely

attorneys'

.

For t h e r e a s o n s s t a t e d i n

§

III.D.2 ( b ) ,

f e e s t h a t t h e Bankruptcy Court ordered

t o p a y were n e i t h e r

unreasonable

nor based

on a n

e r r o n e o u s view o f t h e law o r t h e e v i d e n c e .

IV.

Conclusions and Order

For t h e r e a s o n s s t a t e d above, t h e Bankruptcy C o u r t ' s
Denying P l a i n t i f f s '
2012,

i s AFFIRMED;

(1) O r d e r

Amended M o t i o n t o Remand e n t e r e d on March 2 2 ,
( 2 ) O r d e r d e n y i n g Cindy D.

N e e l y r s Notice of

D i s m i s s a l u n d e r FRCP 4 1 ( a ) e n t e r e d on March 2 2 , 2 0 1 2 , i s AFFIRMED;
( 3 ) O r d e r d e n y i n g G e o r g e R . N e e l y ' s N o t i c e o f D i s m i s s a l u n d e r FRCP
4 1 ( a ) e n t e r e d on March 2 2 ,

Plaintiffs'

2012,

i s AFFIRMED;

( 4 ) O r d e r Denying

Motions t o D i s m i s s and G r a n t i n g Defendants'

Motion t o

Dismiss

entered

on

March

22,

2012,

is AFFIRMED;

(5) Order

sanctioning appellants entered on August 29, 2012, is AFFIRMED; and
(6) the Final Judgment entered on September 6, 2012, is AFFIRMED.
Appellees James M. Trippon and J.M. Trippon

&

Company, CPAfs Motion

to Dismiss Appeal (Docket Entry No. 2) is DENIED as moot.
SIGNED at Houston, Texas, on this

day of June, 2013.

UNITED STATES DISTRICT JUDGE