Avion Funding v. GFS Industries
- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- 23-50237 (5th Circuit, Apr 17,2024) Published
- Tag(s):
-
- Ruling:
- Joining the U.S. Court of Appeals for the Fourth Circuit, and diverging from some bankruptcy courts, including the one below, the U.S. Court of Appeals for the Fifth Circuit (Circuit) held that, in Subchapter V proceedings, both corporate and individual debtors are subject to the list of § 523(a) discharge exceptions, a result "complicated by a certain textual awkwardness in the Bankruptcy Code" and the subject of much academic and juridical debate.
- Procedural context:
- On July 25, 2022, Avion Funding L.L.C. (Avian), a counter-party to a prepetition contract with GFS Industries, L.L.C. (GFS), a Subchapter V debtor, filed an adversary complaint in GFS’s bankruptcy pending in the Bankruptcy Court for the Western District of Texas (BC). Among other things, Avion claimed GFS obtained Avion’s financing by misrepresenting whether it anticipated filing for bankruptcy. Avion sought a declaration that GFS’s debt to Avion was therefore nondischargeable. In response, GFS moved to dismiss Avion’s complaint, arguing that 11 U.S.C. § 523(a), the subsection under which the Avion relied, applies only to individual debtors and that, as a result, GFS’s debt was dischargeable. Accordingly, the BC ruled GFS’s debt to Avion was dischargeable and dismissed Avion’s complaint. Avion timely appealed to the district court, even while the BC subsequently granted Avion’s motion to certify a direct appeal to the Circuit under 28 U.S.C. § 158(d)(2).
- Facts:
- GFS Industries, L.L.C. (DR), a Texas limited liability corporation that provides commercial cleaning services, entered into an agreement with Avian on April 6, 2022. Avion would give GFS $190,000 in exchange for $299,800 of GFS’s future receivables. Although GFS represented it had not filed, nor did it anticipate filing, any Chapter 11 bankruptcy petition, GFS petitioned for voluntary Chapter 11 bankruptcy in the BC only two weeks after this agreement's execution. It chose to proceed under Subchapter V.
- Judge(s):
- Stuart K. Duncan; Stephen A. Higginson; and Patrick Higginbotham
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