Take the Fifth

Designated for publication

• In the Matter of With Purpose, Inc., 25-10572, appeal from N.D. Tex.
  • Elrod, C.J. (Elrod, Smith, Wilson) (oral argument), bankruptcy
  • Affirming bankruptcy court’s finding of willful violation of bankruptcy automatic stay by aggressive arbitration against debtor’s founder.
  • With Purpose, Inc. (formerly doing business as GloriFi), a financial technology start-up co-founded by Toby Neugebauer, filed for Chapter 7 bankruptcy in February 2023. Prior to the bankruptcy, With Purpose had filed arbitration claims against the Ayers parties, who in turn filed counterclaims against both With Purpose and Neugebauer. After the bankruptcy filing, the Ayers parties stopped pursuing claims against the debtor but continued pursuing claims against Neugebauer, including aggressively seeking his deposition across multiple noticed dates in the arbitration. Neugebauer refused to appear, and the arbitrator imposed sanctions; Neugebauer then moved in the bankruptcy court to enforce the automatic stay. The bankruptcy court found a willful violation of the stay and awarded Neugebauer actual damages, including attorney’s fees; the district court affirmed.
  • At issue on appeal was (1) whether Neugebauer, as a creditor and individual, had prudential standing to enforce the automatic stay and recover damages under 11 U.S.C. § 362(k); (2) whether the Ayers parties willfully violated the automatic stay by pursuing a deposition of Neugebauer in the arbitration after the Chapter 7 filing; and (3) whether the bankruptcy court erred in its calculation of the attorney’s fees award.
  • The Fifth Circuit held that Neugebauer had standing, that the Ayers parties willfully violated the automatic stay, and that the bankruptcy court did not clearly err in its damages award.
  • Standing: Under St. Paul Fire & Marine Insurance Co. v. Labuzan, 579 F.3d 533 (5th Cir. 2009), a creditor can sue to enforce the automatic stay, and the parties did not dispute Neugebauer’s creditor status. Moreover, Neugebauer falls within the plain language of § 362(k), which grants recovery to “an individual injured by any willful violation” of the stay. The court called Neugebauer’s expenditure of substantial resources dealing with the violation “a classic pocketbook injury sufficient to give [him] standing.”
  • Willful Violation: The Ayers parties undisputedly knew of the stay (they notified the arbitrator and stopped pursuing claims against the debtor) and intentionally pursued the deposition of Neugebauer. The “loadbearing question” was whether the actions violated the stay; the court held they did because the Ayers parties’ fiduciary-duty claim was “property of the estate” under Fifth Circuit precedent in In re Educators Group Health Trust, 25 F.3d 1281 (5th Cir. 1994), and pursuing the deposition in relation to it constituted acting “to exercise control over property of the estate” in violation of § 362(a)(3). The court noted the Ayers parties “implicitly acknowledged that the estate controls their breach-of-fiduciary-duty claim when they agreed to dismiss it in coordination with the estate.”
  • Attorney’s Fees: The court held that because § 362(k) mandates an award of fees (“shall recover actual damages, including costs and attorneys’ fees”), the proper standard of review is clear error, not abuse of discretion — correcting the district court on this point. The bankruptcy court had reviewed billing “line-by-line,” eliminated unrelated entries, and halved the amount for duplicative staffing. Fees from Neugebauer’s state-court lawsuit to stay the arbitration were properly included as “actual damages” because “Neugebauer would not have needed to pursue a state-law stay had the Ayers parties abided by the automatic stay.”

Unpublished decisions

• United States v. Rodriguez-Garza, 25-40488, appeal from S.D. Tex.
  • per curiam (Smith, Southwick, Oldham) (no oral argument), criminal, sentencing, sufficiency of evidence
  • Affirming sentence based on a two-level sentencing enhancement under U.S.S.G. § 2L1.1(b)(5)(C) based on a coconspirator’s possession of a dangerous weapon.
  • The court held that the record contained sufficient evidence that the coconspirator possessed a firearm and that this constituted relevant conduct, so the district court did not clearly err in applying the enhancement.

• United States v. Naranjo, 25-50806, appeal from W.D. Tex.
  • per curiam (Smith, Graves, Higginson) (no oral argument), criminal, compassionate release
  • Affirming denial of motion for compassionate release.
  • At issue on appeal was whether the district court abused its discretion in denying a motion for compassionate release under 18 U.S.C. § 3582(c)(1)(A)(i) by (1) allegedly relying on the § 3553(a) analysis from the original sentencing and (2) allegedly failing to explain its decision adequately under Chavez-Meza v. United States, 585 U.S. 109 (2018).
  • The court found the district court did not merely adopt its prior sentencing analysis but independently reviewed the briefs, agreed with the government’s § 3553(a) arguments, and based its denial on the nature and circumstances of the offenses, criminal history, seriousness of the offenses, deterrence, and public protection. The court also rejected Naranjo’s Chavez-Meza argument and noted that disagreement with the district court’s balancing of the § 3553(a) factors does not establish an abuse of discretion.

• United States v. Gaytan-Portales, 25-50947, appeal from W.D. Tex.
  • per curiam (Higginbotham, Smith, Ho) (no oral argument), criminal, sentencing
  • Affirming enhanced sentence for illegal reentry.
  • At issue on appeal was whether the recidivism enhancement under 8 U.S.C. § 1326(b) is unconstitutional because it permits a sentence above the otherwise applicable statutory maximum based on facts neither alleged in the indictment nor found by a jury beyond a reasonable doubt.
  • The court held the argument is foreclosed by Almendarez-Torres v. United States, 523 U.S. 224 (1998), which persists as a narrow exception permitting judges to find the fact of a prior conviction, as confirmed in Erlinger v. United States, 602 U.S. 821, 838 (2024). The government’s motion for summary affirmance was denied; the judgment was affirmed without further briefing because Almendarez-Torres is clearly dispositive.

• United States v. Hedrick, 26-40036, appeal from S.D. Tex.
  • per curiam (Richman, Duncan, Ramirez) (no oral argument), habeas corpus, appellate jurisdiction, sanctions
  • Dismissing for lack or jurisdiction appeal from the denial of motions in a criminal proceeding that sought to direct the FBI to file criminal charges against various individuals, from orders in the defendant’s § 2255 and § 2241 proceedings given untimely notices of appeal, and from award of sanctions were warranted for continued filing of frivolous, repetitive, or abusive motions.
  • The court held that Hedrick’s motions in the criminal proceeding were “meaningless, unauthorized motions” with no jurisdictional basis, citing United States v. Early, 27 F.3d 140, 142 (5th Cir. 1994). The appeals from the § 2255 and § 2241 orders were untimely under Bowles v. Russell, 551 U.S. 205 (2007). The IFP motion and recusal motion were denied. The court imposed a $300 sanction (increased from a prior $100 sanction) and warned Hedrick that future frivolous filings will result in progressively more severe sanctions, including potential filing restrictions.