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In re Deberry

United States Court of Appeals, Fifth Circuit

December 23, 2019

In the Matter of: CURTIS HAROLD DEBERRY, Debtor,
v.
JOHN PATRICK LOWE, Appellee. CHERI ANN WHITLOCK, Appellant,

          Appeal from the United States District Court for the Western District of Texas

          Before CLEMENT, DUNCAN, and OLDHAM, Circuit Judges.

          ANDREW S. OLDHAM, CIRCUIT JUDGE:

         The Bankruptcy Code empowers a trustee to "avoid" certain pre-petition transactions and "recover" funds rightfully owed to the bankruptcy estate. The question presented is whether the trustee can double-recover funds that were already returned. The district and bankruptcy courts below said yes, disagreeing with every other court that has considered the question. We vacate and remand.

         I.

         Curtis DeBerry owned a produce-distribution business in San Antonio. He filed a Chapter 7 bankruptcy petition in February 2014. He committed bankruptcy fraud, so the district court sentenced him to 24 months in prison. Ours is not the criminal case, however. This is an adversary proceeding filed by the trustee of his bankruptcy estate, Appellee John Patrick Lowe ("the Trustee").

         A.

         A few months before Mr. DeBerry filed for bankruptcy, his wife, Kathy DeBerry (née Whitlock), opened a joint bank account at Wells Fargo with her sister-in-law, Appellant Cheri Whitlock. Mrs. DeBerry allegedly wanted to use the account to transfer money to her children, who were away at school. It's unclear why she needed a joint bank account with Ms. Whitlock to do that.

         On August 26, 2013, Ms. Whitlock went with Mrs. DeBerry to open the account at a Wells Fargo branch. Mrs. DeBerry gave her a cashier's check for $275, 000 withdrawn from the DeBerrys' joint account. Ms. Whitlock endorsed the check, and they deposited it in the new Wells Fargo account.

         Three days later, Mrs. DeBerry removed herself from the Wells Fargo account, leaving it solely in Ms. Whitlock's name. Ms. Whitlock signed the form that made her the sole accountholder, but she attested that Mrs. DeBerry showed her only the signature pages when asking her for a signature. She did not know Mrs. DeBerry was removing herself from the account, and she "would have never signed a document permitting that to happen."

         Ms. Whitlock explained that her sister-in-law was "always busy with work." "I didn't work at the time," Ms. Whitlock testified, "[s]o, she would ask me can you go sign this paper [at the bank] and I'd say, yeah, I'll pop in." She "never questioned why Kathy wasn't signing the[] documents" herself. "I was doing a favor for my sister-in-law and never asked," Ms. Whitlock testified.

         The money didn't stay in the Wells Fargo account for long. Starting about a month after the sisters-in-law opened the account, the $275, 000 was transferred out. On September 23, Ms. Whitlock wired $33, 500 to The International CC, LLC, with a notation for Chantel DeBerry (the DeBerrys' daughter). Ms. Whitlock said the transfer paid for Chantel's culinary school. That same day, Ms. Whitlock authorized an automatic transfer of $9, 200 to Marla Bainbridge. Ms. Whitlock does not know who Marla Bainbridge is. Ms. Whitlock did not fill out the information on either of these transfer request forms-she testified she only signed them at Mrs. DeBerry's request.

         On October 7, Ms. Whitlock signed the two wire transfers at the heart of this case. The first transferred $32, 000 from the Wells Fargo account to Kathy DeBerry's personal bank account, which was in her name only. The second transferred $200, 000 to an account owned by Mr. DeBerry's LLC, "MBC."[1] Ms. Whitlock testified that she signed the October 7 wire transfers, like the others, at Mrs. DeBerry's request and that she neither filled out the forms nor asked about their destinations or purposes.

         Ms. Whitlock testified: "It never occurred to me to review the transfer request or the reasons why the transfers were being made. . . . Because the monies belonged to Kathy [DeBerry], I did not question what she wanted to do with [them]."

         B.

         The Trustee filed an adversary proceeding against Ms. Whitlock (and others) to avoid and recover the $275, 000 as a fraudulent transfer. He settled with Chantel DeBerry, so the $33, 500 transferred on September 23 is no longer at issue. That leaves $241, 500. The Trustee argues Ms. Whitlock is liable for all $241, 500 under 11 U.S.C. § 550, which allows a bankruptcy trustee to recover fraudulently transferred funds from transferees. Ms. Whitlock denies liability based on two arguments. First, she contends she is not a "transferee" because the money really belonged to the DeBerrys all along; she was a "mere conduit." Second, she contends the ...


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