McFarland & Tondre v. Texas General

United States Court of Appeals,
for the Fifth Circuit.

No. 93-2762.

In the Matter of TEXAS GENERAL PETROLEUM CORP., Debtor.

Van E. McFARLAND, et al., Appellants,

v.

Steven A. LEYH, Trustee of the Liquidating Trust of Texas General
Petroleum Corp., Appellee.

Dec. 29, 1994.

Appeal from the United States District Court for the Southern
District of Texas.

Before POLITZ, Chief Judge, GOLDBERG and DUHÉ, Circuit Judges.

DUHÉ, Circuit Judge:

Appellants Van E. McFarland and McFarland & Tondre (McFarland)

appeal the district court's judgment in favor of Appellee Steven A.

Leyh, Trustee of the Liquidating Trust of Texas General Petroleum

Corp. (Liquidating Trustee). Debtor Texas General Petroleum Corp.

brought this fraudulent conveyance action against McFarland after

the bankruptcy court had confirmed Debtor's Chapter 11 plan of

reorganization. The Liquidating Trustee ultimately asserted the

action in place of Debtor. By stipulation, the only issue at trial

was whether the Liquidating Trustee had standing to assert the

fraudulent conveyance action. The bankruptcy court answered that

question in the affirmative, and the district court affirmed. We

affirm but for somewhat different reasons.

BACKGROUND

The bankruptcy court confirmed debtor's plan of reorganization

under Chapter 11 of the Bankruptcy Code in April 1985. In October

1
of that year, the Liquidating Trustee initiated this fraudulent

conveyance action against McFarland. The subject of the suit was

a $12,210.25 payment made by Debtor to McFarland for legal services

performed for a former officer of Debtor's parent company. The

parties stipulated that the only issue was the Liquidating

Trustee's standing to assert the action. The Plan gave the

Liquidating Trustee authority to assert a list of avoidance actions

on behalf of the unsecured creditors. The list, however, did not

include the fraudulent conveyance action against McFarland. The

bankruptcy court determined that the Plan was ambiguous. Using

parol evidence, the court concluded that the parties intended the

Liquidating Trustee to have the authority to assert on behalf of

the unsecured creditors any causes of action not specifically

addressed by the Plan 122 B.R. 306.

The district court affirmed, concluding that the trial court's

interpretation of the ambiguous plan was not clearly erroneous. In

addition, the district court determined that the bankruptcy court

had jurisdiction to adjudicate the dispute, that McFarland was not

entitled to a jury trial, and that the bankruptcy court's award of

prejudgment interest was not error. During the litigation,

co-defendant Brice Tondre settled with the Liquidating Trustee for

$10,000. The district court credited only $500 of the settlement

payment to the judgment.

DISCUSSION

On appeal, McFarland claims that the Liquidating Trustee

lacks standing. In addition, McFarland asserts five other issues:

2
(1) the bankruptcy court lacked jurisdiction; (2) limitations

extinguished the avoidance action; (3) McFarland was entitled to

a jury trial; (4) the award of prejudgment interest was error;

and (5) McFarland should have received full credit for the

settlement of his co-defendant. We review findings of fact for

clear error and legal conclusions de novo. Young v. National Union

Fire Ins. Co., (In re Young), 995 F.2d 547, 548 (5th Cir.1993).

When the district court has affirmed the bankruptcy court's

findings of fact, our review for clear error is strict. Id.

I. Standing

McFarland first contends that the Liquidating Trustee cannot

exercise avoidance powers because it is neither the Debtor nor the

Trustee. In this case, the Debtor acted as debtor-in-possession,

and the bankruptcy court employed no Trustee. The Plan created the

position of Liquidating Trustee.

McFarland's argument runs counter to Section 1123 of the

code, which allows a plan to provide for "the retention and

enforcement by the debtor, by the trustee, or by a representative

of the estate appointed for such purpose, [of any claim or interest

belonging to the debtor or to the estate]." 11 U.S.C. §

1123(b)(3)(B) (1988). Section 1123(b)(3)(B) allows a plan to

transfer avoidance powers to a party other than the debtor or the

trustee. Briggs v. Kent (In re Professional Inv. Properties of

America), 955 F.2d 623, 626 (9th Cir.), cert. denied, --- U.S. ----

, 113 S.Ct. 63, 121 L.Ed.2d 31 (1992); Citicorp Acceptance Co. v.

Robison (In re Sweetwater), 884 F.2d 1323, 1327 (10th Cir.1989).

3
We agree with the Ninth and Tenth Circuits that a party other than

the debtor or the trustee may be authorized by a plan of

reorganization to exercise avoidance powers.

Under Section 1123(b)(3)(B), a party other than the debtor or

the trustee that seeks to enforce a claim must show (1) that it has

been appointed, and (2) that it is a representative of the estate.

Retail Marketing Co. v. King (In re Mako, Inc.), 985 F.2d 1052,

1054 (10th Cir.1993); In re Hunt, 136 B.R. 437, 444

(Bankr.N.D.Tex.1991). The bankruptcy court's approval of a plan

that clearly appoints a stranger to the estate satisfies the first

element. Mako, 985 F.2d at 1055; Sweetwater, 884 F.2d at 1326;

Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177,

1180 n. 1 (11th Cir.1987). As for the second element, courts apply

a case-by-case analysis to determine whether the appointed party's

responsibilities qualify it as a representative of the estate.

Sweetwater, 884 F.2d at 1326-27. "The primary concern is whether

a successful recovery by the appointed representative would benefit

the debtor's estate and particularly, the debtor's unsecured

creditors." Id. at 1327. The reason for the emphasis on unsecured

creditors is that the proceeds recovered in an avoidance action

satisfy the claims of priority and general unsecured creditors

before the debtor benefits. Id.

Applying this test the Plan clearly appoints the Liquidating

Trustee as a representative of the estate to pursue avoidance

actions on behalf of unsecured creditors. Class 5 of the Plan

consists of unsecured claimants. The Liquidating Trust is provided

4
for the benefit of Class 5 creditors. Provision 5.5.3 of the Plan

establishes the assets of the Liquidating Trust as including

"bankruptcy-created or sanctioned causes of action of the

debtor-in-possession described or listed in Exhibit B." Exhibit B

lists specific avoidance actions. The approved Plan clearly gives

the Liquidating Trustee the power to assert avoidance actions.

Furthermore, the Liquidating Trustee qualifies as a representative

of the estate because the proceeds obtained from its actions

benefit the unsecured creditors. We conclude that the Plan gives

the Liquidating Trustee authority to enforce avoidance actions on

behalf of the estate.

The avoidance action that the Liquidating Trustee asserts

against McFarland, however, is not found in Exhibit B. McFarland,

citing § 1141(b), contends that, because the Plan through Exhibit

B does not specifically provide for the fraudulent conveyance

action, the ability to exercise that action vests in the debtor.1

McFarland would apply the § 1141(b) presumption rather than use

parol evidence. Avoidance actions, however, are not property of

the estate. Harstad v. First Am. Bank, 39 F.3d 898, 902-03, (8th

Cir.1994). Section 1141(b) may determine what assets remain

property of the estate, but that section has nothing to do with the

retention of avoidance actions.2 In re Harstad, 155 B.R. 500, 510

1
Section 1141(b) provides: "Except as otherwise as provided
in the Plan or the order confirming the Plan, the confirmation of
a plan vests all of the property of the estate in the debtor."
11 U.S.C. § 1141(b) (1988).
2
If § 1141(b) applied to avoidance actions, § 1123(b)(3)(B),
which expressly applies to debtors, would become a nullity.

5
(Bankr.D.Minn.1993) (subsequent history omitted).

We apply the rules of contract interpretation to the

interpretation of a plan of reorganization. See Official Creditors

Comm. v. Stratford of Tex., Inc. (In re Stratford of Tex., Inc.),

635 F.2d 365, 368 (5th Cir.1981). The determination of whether a

contract is clear or ambiguous is a question of law. Id. If we

determine the contract to be ambiguous, the determination of the

parties' intent from parol evidence is a question of fact.3 Id.

Provision 7.1 of the Plan states: "The reorganized debtor

shall retain that property described on Exhibit "F". Among the

property of the estate hereby distributed to the trust are those

claims and causes of action listed or described on Exhibit "B"

(including causes of action created or sanctioned by §§ 542-553)."

The parenthetical portion of the provision could describe those

avoidance actions listed in Exhibit B. Alternatively, the

parenthetical could describe the phrase "[a]mong the property of

the estate hereby distributed to the trust." Provision 5.5.3

suggests that Exhibit B contains a complete list of the trust's

Harstad, 39 F.3d at 902-03 (asking why a debtor would retain a
power by using specific language if § 1141(b) gives him that
power automatically).
3
Mako requires the evidence of an appointment of a stranger
to be clear. 985 F.2d at 1055. The reason for clarity is to
protect the unsecured creditors. Id. at 1056. Unsecured
creditors want to know whether post confirmation avoidance
actions will be initiated and by whom. The clear appointment
requirement satisfies their concerns. Neither Mako nor the cases
it cites, however, require clear evidence of the particular
action sought to be enforced. Stratford supplies the additional
analysis when, as in this case, the appointment is clear but the
Plan is unclear with regard to the particular action sought to be
enforced.

6
assets. On the other hand, the use of the word "among" in

Provision 7.1 suggests that Exhibit B is not exclusive. We agree

with the bankruptcy and district courts that the Plan is ambiguous.

To resolve the ambiguity, the bankruptcy court employed parol

evidence to determine the intent of the parties. The court found

that those avoidance actions not specifically addressed by the Plan

belong to the Liquidating Trust. We see no clear error.

Furthermore, the result reached by the court comports with the

general policy behind the assertion of avoidance actions. The

proceeds recovered in avoidance actions should not benefit the

reorganized debtor; rather, the proceeds should benefit the

unsecured creditors. 5 Collier on Bankruptcy ¶ 1123.02, at 1123-23

(Lawrence P. King ed., 15th ed. 1994). The Liquidating Trust acts

on behalf of the Class 5 unsecured creditors. The proceeds from

this fraudulent conveyance action will benefit the Class 5

unsecured creditors. We conclude that the Liquidating Trustee has

standing to assert a fraudulent conveyance action against

McFarland.

II. Jurisdiction

McFarland contends that the bankruptcy court lacked subject

matter jurisdiction under Article III of the Constitution to

adjudicate this dispute. The district court glossed over this

argument by asserting that the bankruptcy court had jurisdiction by

virtue of the Plan and 28 U.S.C. § 157(b)(1).4 McFarland's

4
Section 157(b)(1) gives the bankruptcy courts jurisdiction
over core proceedings. A fraudulent conveyance action is an
example of a core proceeding. 28 U.S.C. § 157(b)(2)(H) (1988).

7
argument, however, is based on Article III as interpreted by

Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S.

50, 87, 102 S.Ct. 2858, 2880, 73 L.Ed.2d 598 (1982) (plurality

opinion). We must undertake the constitutional analysis.

Marathon struck down the jurisdictional provision of the 1978

Bankruptcy Act. The debtor had brought a state law breach of

contract action against a creditor. The Court determined that the

suit did not implicate public rights and, thus, must be adjudicated

by an Article III judge. The court distinguished "the

restructuring of debtor-creditor relations, which is at the core of

the federal bankruptcy power," from "the adjudication of

state-created private rights." Id. at 71, 102 S.Ct. at 2871. To

delineate public rights, the court announced two principles: (1)

"when Congress creates a substantive federal right, it possesses

substantial discretion to prescribe the manner in which that right

may be adjudicated"; and (2) the Article III court must retain the

essential attributes of judicial power. Id. at 80-81, 102 S.Ct. at

2876.

In its 1984 Amendments to the Bankruptcy Code, Congress

followed the court's rationale. Bankruptcy courts retained

jurisdiction over core proceedings. 28 U.S.C. § 157(b)(1).

Congress did not define "core proceeding," but it did provide a

nonexclusive list of core proceedings. See id. § 157(b)(2). The

list includes fraudulent conveyance actions. Id. § 157(b)(2)(H).

The Ninth Circuit has held a bankruptcy court's exercise of

jurisdiction under § 157(b)(2)(H) constitutional. Duck v. Munn (In

8
re Mankin), 823 F.2d 1296, 1309 (9th Cir.1987), cert. denied, 485

U.S. 1006, 108 S.Ct. 1468, 99 L.Ed.2d 698 (1988); see also Hunt,

136 B.R. at 442 (following Mankin). Mankin concerned a state law

fraudulent conveyance action brought by the trustee in bankruptcy

under § 544(b) of the Code. The Ninth Circuit applied Marathon's

two principles and determined that public rights were at issue. On

the first principle, the court reasoned that Congress deserved some

discretion. Even though state law provided the rule of decision,

Congress gave avoidance powers to the trustee "for the purpose of

restructuring debtor-creditor relations pursuant to the federal

bankruptcy power." Id. Unlike the state law action in Marathon,

Congress considered a fraudulent conveyance action to be a core

proceeding. Concerning the second principle, the court explained

the difference in the appointment of bankruptcy judges under the

1978 Bankruptcy Act and after the 1984 Amendments. Under the 1978

Act, the President was supposed to appoint bankruptcy judges with

the advice and consent of the Senate.5 Now, Article III judges

5
The President actually never appointed any bankruptcy
judges because the portion of the 1978 Act which gave the
President that power only became effective on April 1, 1984. See
1978 Bankruptcy Act, Pub.L. No. 95-598, §§ 201(a), 402(b), 92
Stat. 2549, 2657, 2682 (1978). By that time, the Supreme Court
had decided Marathon, and Congress had revised the manner of
appointment for bankruptcy judges. See Bankruptcy Amendments and
Federal Judgeship Act of 1984, Pub.L. No. 98-353, § 104(a), 98
Stat. 333, 336 (1984), codified at 28 U.S.C. § 152(a)(1) (1988).

Nevertheless, the plurality opinion in Marathon based
its decision on the manner of appointment provided in the
1978 Act. See Marathon, 458 U.S. at 89-90, 102 S.Ct. at
2880-81 (Rehnquist, J., concurring); see also id. at 53,
102 S.Ct. at 2862 (plurality opinion) (discussing the
differences between appointment before and after the 1978
Act). Thus, to distinguish Marathon, the Ninth Circuit in

9
appoint them. The appointment power gives Article III judges more

control over their bankruptcy counterparts. See id.

We agree with the Ninth Circuit's conclusion in Mankin.6 As

we have previously noted, Congress took great pains to incorporate

in its 1984 Amendments the varying opinions expressed in Marathon.

Wood v. Wood, 825 F.2d 90, 95-96 (5th Cir.1987). Moreover,

"practical attention to substance rather than doctrinaire reliance

on formal categories should inform application of Article III."

Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 587, 105

S.Ct. 3325, 3336, 87 L.Ed.2d 409 (1985). Jurisdiction over the

restructuring of debtor-creditor relations requires jurisdiction

over property of the estate. Although McFarland and the

Liquidating Trustee are two private individuals, the Liquidating

Trustee is acting on behalf of the unsecured creditors. For

practical purposes, the fraudulent conveyance action instituted on

behalf of the estate is as integral to the bankruptcy restructuring

process as any other core proceeding. We conclude that the

bankruptcy court's exercise of jurisdiction in the fraudulent

conveyance action was constitutional.7

Mankin emphasized the difference in appointment as
contemplated by the 1978 Act and as practiced under the 1984
Amendments.
6
The case for jurisdiction here is even stronger than that
presented in Mankin. In this case, the fraudulent conveyance
action is based on federal law, not state law. Because federal
law provides the rule of decision, the substantial discretion due
Congress under Marathon's first principle definitely applies.
7
McFarland also cites the Supreme Court discussion in
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 55-56, 109 S.Ct.
2782, 2797-98, 106 L.Ed.2d 26 (1989). The trustee in bankruptcy

10
III. Statute of Limitations

McFarland contends that the Liquidating Trustee's fraudulent

conveyance action is barred by limitations. He points to § 546(a)

of the Code, which specifies the limitations period for avoidance

actions.8 McFarland did not raise this defense in either the

bankruptcy court or the district court. To circumvent the obstacle

of waiver,9 McFarland contends that § 546(a) is a non-waivable

jurisdictional provision. Because the issue of subject matter

jurisdiction may be raised at any time, we can reach the merits of

McFarland's limitations defense if we determine that § 546(a) is a

jurisdictional provision.

Martin v. First Nat'l Bank (In re Butcher), 829 F.2d 596, 600

(6th Cir.1987), cert. denied, 484 U.S. 1078, 108 S.Ct. 1058, 98

in Granfinanciera had brought a fraudulent conveyance action
against a creditor. The question presented for the Court was
whether the creditor had a right to jury trial. McFarland points
to part of Justice Brennan's opinion that appears to treat the
fraudulent conveyance action as matter of private rather than
public right. Id. at 56, 109 S.Ct. at 2798. The Supreme Court's
discussion of public rights, however, is dictum by its own
admission.

The Eleventh Circuit has recognized that the Supreme
Court's dictum in Granfinanciera leaves the constitutional
exercise of bankruptcy jurisdiction "open to serious
question." Gower v. Farmers Home Admin. (In re Davis), 899
F.2d 1136, 1140 n. 9 (11th Cir.1990).
8
Section 546(a) reads: "An action ... may not be commenced
after the earlier of—(1) two years after the appointment of a
trustee ... or (2) the time the case is closed or dismissed." 11
U.S.C. § 546(a) (1988).
9
The parties stipulated before trial that standing was the
only issue before the bankruptcy court. A stipulation of issues
at trial binds the parties on appeal. Wilson v. Bailey, 934 F.2d
301, 305 (11th Cir.1991).

11
L.Ed.2d 1020 (1988), states that § 546(a) is a jurisdictional

provision. If an avoidance action is not brought in accordance

with § 546(a), the bankruptcy court has no jurisdiction to hear the

action. Id. A few other courts recognize this view. In re

Railway Reorganization Estate, Inc., 133 B.R. 578, 581

(Bankr.D.Del.1991); In re Frascatore, 98 B.R. 710, 719

(Bankr.E.D.Pa.1989) (dictum); In re Oro Import Co., 52 B.R. 357,

359 (Bankr.S.D.Fla.1985), rev'd on other grounds, 69 B.R. 6

(S.D.Fla.1986).

Several recent decisions disagree with Butcher and treat §

546(a) as a true statute of limitations. Amazing Enters. v. Jobin

(In re M & L Business Machs.), 153 B.R. 308, 311 (D.Colo.1993);

Brandt v. Gelardi (In re Shape, Inc.), 138 B.R. 334, 337

(Bankr.D.Me.1992); see also In re Day, 82 B.R. 365, 366

(Bankr.E.D.Pa.1988) (considering Butcher's view of § 546(a) as a

jurisdictional provision to be gratuitous). These courts note that

the legislative history of § 546(a) refers to the statute as a

statute of limitations, but makes no reference to it as a

jurisdictional provision.

Other cases add support to this latter view. In Smith v. Mark

Twain Nat'l Bank, 805 F.2d 278 (8th Cir.1986), the Eighth Circuit

construed § 549(d) of the Code, which is almost identical to §

546(a).10 The Eighth Circuit determined that § 549(d) "has nothing

10
Section 549(d) applies to post-petition transactions. It
requires: "An action or proceeding under this section may not be
commenced after the earlier of—(1) two years after the date of
transfer sought to be avoided; or (2) the time the case is
closed or dismissed." 11 U.S.C. § 549(d) (1988). The only

12
to do with the jurisdiction of the United States federal courts."

Id. at 294. Similarly, in Emmons v. Southern Pac. Transp. Co., 701

F.2d 1112 (5th Cir.1983), we construed 45 U.S.C. § 56, the

limitations provision of the Federal Employees Liability Act

(FELA). The wording of that statute closely resembles § 546(a).11

We interpreted the FELA provision to be a substantive statute of

limitations. Id. at 1117-18.

We respectfully disagree with the Sixth Circuit and conclude

that McFarland waived his limitations defense by not raising it in

the trial court. As stated supra Part II, the jurisdictional

provision of the bankruptcy courts is found at 28 U.S.C. § 157.

Nothing in the Code or the legislative history suggests otherwise.

IV. Jury Trial

McFarland contends that the bankruptcy court improperly

denied him his Seventh Amendment right to a jury trial. McFarland

relies on the Supreme Court's decision in Granfinanciera, which

recognized a defendant's right to jury trial in a fraudulent

conveyance action asserted under § 548. 492 U.S. at 64, 109 S.Ct.

at 2802. The bankruptcy court distinguished Granfinanciera on the

basis that the only issue before the court was standing and

declined to apply Granfinanciera because that decision was

published after the bankruptcy court had announced its findings of

difference between the two statutes is the point at which the two
years begins to run.
11
The first paragraph of the FELA provision states: "No
action shall be maintained under this chapter unless commenced
within three years from the day the cause of action accrued." 45
U.S.C. § 56 (1988).

13
fact and conclusions of law.

The district court affirmed but for different reasons. The

district court concluded that McFarland had waived his right to

jury trial. The court applied Bankruptcy Rule 9015, which deems a

party's right to jury trial waived if the party does not make a

demand within ten days after service of the last pleading directed

to such issue.12 Former Bankruptcy Rule 9015 was adapted from

Federal Rule of Civil Procedure 38. The district court applied our

Rule 38 cases and determined that McFarland had waived his right to

jury trial.13

12
Bankruptcy Rule 9015 was abrogated in 1987. Before 1987,
the Rule provided:

(b)(1) Time; Form. Any party may demand a trial by
jury of any issue triable by a jury by serving on the
other parties a demand therefore in writing not later
than ten (10) days after service of the last pleading
directed to such issue. The demand may be endorsed on
a pleading of the party. When a jury trial is
demanded, it shall be designated by the Clerk in the
docket as a jury matter.

....

(c) Waiver. The failure of a party to serve a demand
as required by this rule and to file as required by
Rule 5005 constitutes a waiver of a trial by jury.

Bankr.R. 9015 (abrogated 1987).
13
A history of the pleadings and relevant motions is helpful
at this point:

—Oct. 15, 1985: Debtor files complaint against
McFarland

—Dec. 19, 1985: McFarland files Rule 12 motion to
dismiss

—Jan. 22, 1986: McFarland responds to Debtor's request
for production

14
 The district court applied our decision in Guajardo v.

Estelle, 580 F.2d 748, 753 (5th Cir.1978), to find waiver. In

Guajardo, we held that amended pleadings that do not introduce new

issues of fact do not renew a right to jury trial that has been

waived. Id. In this case, however, McFarland never waived his

right to jury trial. The last pleading in Rule 38 usually means an

answer or a reply to a counterclaim. McCarthy v. Bronson, 906 F.2d

835, 840 (2d Cir.), aff'd, 500 U.S. 136, 111 S.Ct. 1737, 114

L.Ed.2d 194 (1990). McFarland did not file an answer to the

original complaint, but rather filed his answer after the Debtor

filed its first amended complaint. Because McFarland filed his

jury demand with his original answer, he did not waive his right to

jury trial, even though he filed his answer almost seven months

after being served with the original complaint.

Nevertheless, McFarland has no right to jury trial in this

case because Granfinanciera is inapplicable. The question before

the bankruptcy court was solely whether the Liquidating Trustee had

standing to assert the fraudulent conveyance action. No right to

a jury trial arises if no jury issue is presented to the court.

—Apr. 25, 1986: McFarland files counterclaim and
third-party claim

—May 2, 1986: Debtor amends complaint

—May 8, 1986: McFarland answers and demands jury trial

As an aside, debtor brought the complaint and its first
amended complaint by and through the Liquidating Trustee.
The second amended complaint, filed on December 20, 1988,
substituted the Liquidating Trustee for the debtor as the
party asserting the action.

15
See Brook Mays Music Co. v. National Cash Register Co., 838 F.2d

1396, 1399 (5th Cir.1988); see also Pardini v. Southern Nev.

Culinary and Bartenders Pension Plan and Trust, 733 F.Supp. 1402,

1405 (D.Nev.1990) (noting that when a particular inquiry usually

does not require the resolution of factual issues, no right to a

jury trial arises). Whether a Plan clearly appoints a stranger as

a representative of the estate under § 1123(b)(3)(B) to enforce

avoidance actions is generally a question of law. See Mako, 985

F.2d at 1054 (listing two-part test); supra note 3. Furthermore,

both parties in their briefs contend that the Plan is unambiguous.

The existence of a factual issue is not readily apparent. We

conclude that McFarland had no right to a jury trial over the

standing issue presented to the bankruptcy court in the

stipulation.

V. Prejudgment Interest

McFarland next contends that the bankruptcy court's award of

prejudgment interest was error because it was not contemplated by

the stipulation. The district court disagreed with McFarland

because prejudgment interest is a question of law over which a

stipulation is not binding. The district court, however, applied

Texas law in its determination. Federal law governs the allowance

of prejudgment interest when a cause of action arises from a

federal statute. Carpenters Dist. Council v. Dillard Dep't Stores,

Inc., 15 F.3d 1275, 1288 (5th Cir.1994). The standard of review

for a trial court's award of prejudgment interest is abuse of

discretion. Id.

16
 Federal courts apply a two-step analysis to determine whether

an award of prejudgment interest is within a court's discretion:

(1) whether the federal act that creates the cause of action

precludes such an award; and (2) whether such an award furthers

the congressional policies of the federal act. Id. The Bankruptcy

Code and particularly § 548 are silent with regard to prejudgment

interest. The stipulation also is silent with regard to interest.

Furthermore, an award of prejudgment interest furthers the

congressional policies of the Bankruptcy Code. Section 548 allows

the estate to recover fraudulent transfers made within a year

before the filing of the bankruptcy petition. The purpose of the

Section is to make the estate whole. Prejudgment interest

compensates the estate for the time it was without use of the

transferred funds. We determine that the bankruptcy court did not

abuse its discretion by awarding prejudgment interest.

VI. Credit for Settling Co-defendant

Lastly, McFarland contends that the settlement of

co-defendant Tondre with the Liquidating Trustee for $10,000 should

have been applied against the outstanding judgment under principles

of joint and several liability. The district court credited only

$500 to the judgment because the Liquidating Trustee offered a copy

of the release he executed in support of his response to

McFarland's motion. The release states that $500 would be applied

to the outstanding judgment and that $9500 serves as a release for

possible sanctions from this court for an unauthorized appeal.

The burden of proof is on the party claiming the credit "to

17
show that the damages assessed against it have "in fact and in

actuality' been previously covered." Wood v. Diamond M Drilling

Co., 691 F.2d 1165, 1171 (5th Cir.1982), cert. denied, 460 U.S.

1069, 103 S.Ct. 1523, 75 L.Ed.2d 947 (1983); see also Cates v.

United States, 451 F.2d 411, 417-18 n. 20 (5th Cir.1971). If the

nonsettling defendant is not a party to the settlement

negotiations, however, he need only show that the plaintiff settled

with another party the claim on which the nonsettling defendant is

liable. U.S. Indus. v. Touche Ross & Co., 854 F.2d 1223, 1262

(10th Cir.1988). The burden then shifts to the plaintiff to offer

proof that the settlement does not provide him with a double

recovery. McDermott, Inc. v. Clyde Iron, 979 F.2d 1068, 1080 (5th

Cir.1992), rev'd in part on other grounds sub nom. McDermott, Inc.

v. AmClyde, --- U.S. ----, 114 S.Ct. 1461, 128 L.Ed.2d 148 (1993);

U.S. Indus., 854 F.2d at 1262-63. The best way for a plaintiff to

satisfy his burden is to offer as proof the written settlement,

which should specifically stipulate the allocation of damages to

each cause of action. Hess Oil V.I. Corp. v. UOP, Inc., 861 F.2d

1197, 1209 (10th Cir.1988). Should the plaintiff satisfy his

burden, the ultimate burden of proof belongs to the nonsettling

defendant. See Wood, 691 F.2d at 1171; Cates, 451 F.2d at 417-18

n. 20.

In this case, McFarland was not a party to the settlement

negotiations that resulted in a settlement between the Liquidating

Trustee and Tondre. The Liquidating Trustee then offered as proof

the settlement, which stipulated the allocation of damages. The

18
burden returns to McFarland. He responds by noting that the Fifth

Circuit denied the Liquidating Trustee's June 4, 1992 Motion for

Sanctions on June 26, 1992. Furthermore, the Liquidating Trustee

executed the release on November 16, 1992, almost five months after

we denied the motion for sanctions. What McFarland suggests is

that the release's consideration of the motion for sanctions

amounts to fraud. We refuse to reach such a conclusion absent

additional evidence.

CONCLUSION

For the foregoing reasons, the district court's judgment is

AFFIRMED.

19