Liberty Mut. Ins. Co. v. United States of Am. by Lamesa Nat'l Bank (In re Schooler)

Liberty Mut. Ins. Co. v. United States of Am. by Lamesa Nat'l Bank (In re Schooler)

Opinion

 [*499]  KING, Circuit Judge.

In 2009, the United States by Lamesa National Bank filed suit against Liberty  [*500]  Mutual Insurance Company, asserting that Liberty Mutual was liable under a federally-required surety bond for the alleged misconduct of its principal, a trustee in a Chapter 7 bankruptcy proceeding. After a trial on Lamesa's claim, the bankruptcy court concluded that the trustee had committed gross negligence, causing damages to the bankruptcy estate in the amount of $112,247.66. The court also held that, as the trustee's surety, Liberty Mutual was liable for those damages under the terms of the bond. The bankruptcy court therefore ordered Liberty Mutual to remit $112,247.66 to the bankruptcy estate for distribution to the estate's creditors. Liberty Mutual appealed the bankruptcy court's judgment to  [**2] the district court, which affirmed. Liberty Mutual now appeals to this court. For the following reasons, we also AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

On August 21, 2001, Robert and Tina Schooler filed for Chapter 7 bankruptcy in the Northern District of Texas. Immediately thereafter, the bankruptcy court appointed Deborah Penner a Chapter 7 trustee (the "Trustee") for the bankruptcy estate. The Trustee is an attorney who, in addition to serving as a trustee in Chapter 7 bankruptcy cases, has a law practice that includes collection and probate work. Like other trustees operating in the Lubbock Division of the Northern District of Texas, the Trustee was covered under a blanket surety bond issued by Liberty Mutual Insurance Company. As relevant, the bond provides that the Trustee, "as [p]rincipal, and Liberty Mutual Insurance Company, as surety, are held and firmly bound unto the United States," in accordance with 11 U.S.C. § 322(a), jointly and severally "for the faithful performance of [the principal's] official duties as Trustee of the estates of . . . debtors assigned to the [p]rincipal by the United States Trustee."¹

After the Schoolers filed for bankruptcy, but within the 180-day statutory window for the inclusion in the estate of inherited assets, Mrs. Schooler's father, Hank Gremminger, Jr., died.² Mrs. Schooler was named independent executrix of Gremminger's will, and was left a one-half interest in his estate, which included real estate, cash, and other assets. Six days after Gremminger's death, Mrs. Schooler filed an application to probate her deceased father's will.

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