On February 28, 2023, the Fifth Circuit Court of Appeals granted Okin Adams leave to take a direct appeal of an order of the United States Bankruptcy Court for the Southern District of Texas. Okin Adams represents the Law Office Rogelio Solis, PLLC and Ana Gomez. The question presented to the Fifth Circuit is whether the pre-petition payment of insurance proceeds to a tort claimant creditor of a debtor constitutes a “transfer of an interest of the debtor in property” under 11 U.S.C. § 547 when such payment is made by an insurer of the debtor pursuant to a valid Stowers settlement demand under Texas law. The question presented will help define the reach of the highly discussed case Martinez v. OGA Charters, L.L.C. (In re Charters, L.L.C.), 901 F.3d 599, 604 (5th Cir. 2018).
The question presented and the appeal seek to clarify OGA’s potential impact upon state property law prior to bankruptcy proceedings. OGA held that, post-petition, a debtor’s estate had a sufficient equitable interest in unpaid insurance proceeds to subject the distribution of such proceeds to the jurisdiction of the bankruptcy court. OGA specifically did not address a debtor’s interest in insurance proceeds prior to a bankruptcy petition filing, which is one of the primary issues to be determined in the direct appeal.
A determination that federal bankruptcy avoidance powers preempt Texas Stowers jurisprudence will significantly upend Texas tort and insurance settlement practice. Texas’s Stowers doctrine, developed through decades of federal and Texas state jurisprudence, promotes the expeditious settlement of tort claims. Significant to the direct appeal, under Texas Stowers jurisprudence, an insured lacks the ability to control or otherwise direct the payment of insurance proceeds in settlement of tort liability claims. Thus, under Texas law, an insured has no ownership rights in the insurance proceeds. If claimants and their counsel are subjected to avoidance liability under § 547 for accepting the proceeds of a valid Stowers settlement, this carefully crafted public policy will be significantly undermined.
This is an important issue for both state court and bankruptcy petitioners alike.
Counsel for the Petitioners are David Curry, Matthew Okin, and Edward Clarkson.