Smith v. Terry

Case Type:
Case Status:
22-50453 (5th Circuit, Apr 28,2023) Published
The sole member of a Chapter 7 debtor lacks standing to appeal an order that compelled him to give the trustee access to and control of financial and other systems and records used in the debtor's business because the order did not directly and pecuniarily affect the sole member. The order to compel did not deprive the sole member of any ownership interests in the electronic records or underlying data.
Procedural context:
After the bankruptcy court entered an order directing the sole member of a debtor to grant the trustee access to and control over accounting and other electronic records management systems used by the debtor, the sole member appealed to the district court. After the district court affirmed the bankruptcy court and denied a motion to reconsider, the sole member appealed to the United States Court of Appeals for the Fifth Circuit.
The appellant, Douglas K. Smith, M.D., is the sole member of the debtor, Salubrio, L.L.C. (d/b/a Brio San Antonia MRI), and controls other related entities, including Musculoskeleton Imaging Consultants, LLC ("MIC"). Salubrio and the related entities provide MRI services, and use a common web-based accounting platform called Intacct, which is licensed through MIC. Salubrio filed a Subchapter V, Chapter 11 bankruptcy in March 2020. Salubrio operated as a going concern until June 2020. In September 2020, the court converted Salubrio's case to a Chapter 7 liquidation. On September 25, 2020, the Trustee filed a motion seeking an order compelling Smith to provide the Trustee with access to and control of Intacct and other IT systems that contained information relevant to the Salubrio bankruptcy case. The bankruptcy court entered an order to compel. Smith appealed, arguing that the accounting and other information that was subject to the Order to Compel were Smith's property, not property of the bankruptcy estate.

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