UNITED STATES COURT OF APPEALS For the Fifth Circuit

No. 01-30921

IN THE MATTER OF PIERRE A. LAPEYRE

Debtor

____________________________________

PIERRE A. LAPEYRE

Appellant - Cross-Appellee,

v.

A.M. DUPONT CORPORATION

Appellee - Cross-Appellant.

Appeals from the United States District Court for the Eastern District of Louisiana January 29, 2003

Before WIENER and DENNIS, Circuit Judges, and LITTLE*, District Judge.

DENNIS, Circuit Judge:**

* District Judge of the Western District of Louisiana, sitting by designation. ** Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

-1- This appeal involves two cases consolidated in the United

States Bankruptcy Court for the Eastern District of Louisiana

concerning the bankruptcy of Debtor/Appellant/Cross-Appellee Pierre

A. Lapeyre (“Lapeyre” or “debtor”). In the first action, removed

from state court, Appellee/Cross-Appellant A.M. Dupont Corporation

(“AMD”) sued Lapeyre to recover sums he caused to be paid in

breach of his fiduciary duty. In the second, an adversary

proceeding filed in the bankruptcy court, AMD sued Lapeyre to

determine the dischargeability of his debts. After a bench trial,

the bankruptcy court ruled that the debtor owed AMD $571,281, and

that $100,000 of the debt was dischargeable; the bankruptcy court

rendered the judgment in favor of AMD and against the debtor

Lapeyre in the amount of $471,281. The district court affirmed.

For the following reasons, we AFFIRM in part, REVERSE in part, and

REMAND for determination of the amount of prejudgment interest owed

to AMD.

I. BACKGROUND

Lapeyre was a shareholder and director of AMD, serving as its

president from 1982 to 1995. AMD is a family-owned, Louisiana

corporation, which received its income mainly from oil and gas and

real estate interests. During the relevant period, AMD’s officers,

directors, and shareholders were as follows:

-2- Pierre A. Lapeyre President, Director 175 Shares Albert F. Dupont Secretary/Treasurer, Director 150 Shares Muriel M. Dupont Vice President, Director 200 Shares Marion L. Dupont Vice President, Director 200 Shares Louis Lapeyre No Office 25 Shares

Lapeyre had effective control of AMD through a voting trust that

contained his and Marion Dupont’s shares. These 375 shares equaled

50% of the outstanding shares and provided Lapeyre with effective

majority control over AMD because Louis Lapeyre’s 25 shares had

been pledged to AMD and were never voted.

Before 1985, AMD owned half of A.M. and J.C. Dupont, Inc.

(“Dupont Inc.”), which in turn owned a department store in Houma,

Louisiana. From 1980 to 1984, Dupont Inc. paid AMD $219,575, which

was one half of the management fees for running the store while its

own officers and directors received the other half of the fees.

After 1985, AMD became the sole owner of Dupont Inc., and Pierre

Lapeyre became the sole AMD director or officer responsible for

running the department store.

A series of financial dealings ensued. In return for managing

the department store, Lapeyre, acting as AMD’s president/director,

paid $430,541 of AMD’s funds for management fees either to himself

or to his company, Euclid Engineering Co. (“Euclid”). The payments

were as follows: $163,966 in 1988; $98,300 in 1989; $54,160 in

1990; $23,315 in 1992; $53,050 in 1993; and $37,750 in 1996.

Although notice of these fees was given to the AMD Board of

-3- Directors (“Board”), the Board never gave its approval. Also,

pursuant to a Board resolution, Lapeyre spent $459,710 of AMD’s

funds to develop the Exervision, an exercise machine for which he

held the patent. In addition, a 1983 resolution by the Board

allowed Lapeyre, as a Board director to borrow up to $100,000 from

AMD. However, Lapeyre borrowed in excess of this amount for both

himself and Euclid. He and Euclid currently owe $370,976 to AMD

for past loans. Finally, AMD’s Board agreed to pay Lapeyre $2,000

a month as President and $600 a month as a director, but did not

consistently make these payments. Consequently, AMD still owes

Lapeyre $96,202 in back pay.

In May 1992, after struggling financially, AMD filed for

bankruptcy. A reorganization plan was confirmed in 1994, and the

case was closed in 1996. In January 1995, Lapeyre was removed as

President of AMD, and the next month AMD sued him in state court,

alleging various fiduciary breaches based on Louisiana law. In

December 1998, Lapeyre filed for Chapter 11 bankruptcy (converted

to a Chapter 7 proceeding in 2001) and removed the state suit to

the Bankruptcy Court in the Eastern District of Louisiana. After

removal, AMD challenged the dischargeability of its claims

originally asserted in the state suit. In November 2000, the

bankruptcy court rendered judgment in favor of AMD and against

Lapeyre in the amount of $471,281 ($571,281 total debt, of which

$100,000 was dischargeable). On appeal, the United States District

-4- Court for the Eastern District of Louisiana affirmed on all

grounds, and the parties timely appealed.

Lapeyre challenges the bankruptcy court’s determinations of

the following issues: (1) the validity of post-petition management

fees, (2) the reimbursement of business expenses, (3) the

imputation of loan repayments, (4) the application of various

offsets, and (5) the dischargeability of the debts in bankruptcy.

AMD contests the following: (1) Lapeyre’s standing to appeal, (2)

the validity of pre-petition management fees, (3) the reimbursement

of research and development expenses, (4) the reimbursement of

litigation expenses, and (5) prejudgment interest.

II. STANDING

We must first determine whether the debtor, Lapeyre, has

standing to bring this appeal. Although this issue was not raised

in the district court, it is a jurisdictional objection that cannot

be waived. In re Weaver,

, 462 n.6 (5th Cir. 1980).

Under

, upon appointment of a trustee, the trustee,

not the debtor, has the exclusive capacity to represent the estate.

In re Educators Group Health Trust,

(5th Cir.

1994) (“If a cause of action belongs to the estate, then the

trustee has exclusive standing to assert the claim.”).

But a party other than the trustee, including the debtor, has

-5- a right to appeal a bankruptcy order if it is a “person aggrieved.”

In re San Juan Hotel,

(1st Cir. 1987); Rohm &

Hass Tex., Inc., v. Ortiz Bros Insulation, Inc.,

, 210

n.18 (5th Cir. 1994). “A litigant qualifies as a ‘person

aggrieved’ if the order diminishes his property, increases his

burdens, or impairs his rights.” In re San Juan Hotel,

; see also In re Fondiller,

(9th Cir.

1982)(“To have standing to ... appeal, appellant must demonstrate

that she was directly and adversely affected pecuniarily by the

order of the bankruptcy court.”); In re Gucci,

(2d Cir. 1997)(“[A]n ‘aggrieved person’ [is] a person ‘directly and

adversely affected pecuniarily’ by the challenged order of the

bankruptcy court.”).

However, the rule for standing in bankruptcy is stricter than

Article III’s “injury in fact” test. In re Gucci,

.

The stricter rule is imposed to avoid unreasonable delay and

protracted litigation that does not serve the interests of either

the debtor’s estate or its creditors. In re San Juan Hotel,

. Therefore, a hopelessly insolvent debtor in a

bankruptcy proceeding generally will not have standing to appeal a

bankruptcy order because the order will not diminish the debtor’s

property, increase his burdens, or detrimentally affect his rights.

In re San Juan Hotel,

. In other words, a party

-6- will not have standing to appeal a bankruptcy order unless it

directly and pecuniarily affects his property, obligations, or

rights.

In the instant case, the debtor challenges the bankruptcy

order concerning the amount owed to AMD for his breach of fiduciary

duty and the dischargeability of that debt in bankruptcy. If AMD

is successful, damages owed based on Lapeyre’s fiduciary breaches

will not be discharged in bankruptcy and will still be owed by

Lapeyre. Because an unfavorable bankruptcy order will render

Lapeyre personally liable for debts even after discharge, this

proceeding directly and pecuniarily affects his obligations.

Therefore, we find that Lapeyre has standing to bring this appeal.

III. ANALYSIS

A. Standard of Review

“This Court, acting as a second review court, reviews the

bankruptcy court’s findings of fact under the clearly erroneous

standard, and the bankruptcy court’s conclusions of law de novo.”

In re U.S. Brass Corp.,

(5th Cir. 2002) (internal

quotations and citations omitted).

B. Pre-Petition Management Fees

Lapeyre and Euclid received $323,816 in department store

management fees from 1986 until AMD’s bankruptcy filing in 1992.

-7- With regard to the pre-petition fees, AMD argues that the

management fees were derived from Lapeyre’s breach of his duty of

fiduciary care and loyalty to AMD. The bankruptcy court rejected

Lapeyre’s argument, and the district court agreed. “Breach of duty

is a question of fact, or a mixed question of law and fact, and the

reviewing court must accord great deference to facts found and

inferences drawn by the finder of fact.” Boykin v. La. Transit Co.,

(La. 1998).

Section 91(A) of the Louisiana Business Corporations Law

(“LBCL”) provides:

Officers and directors shall be deemed to stand in a fiduciary relation to the corporation and its shareholders, and shall discharge the duties of their respective positions in good faith, and with that diligence, care, judgment, and skill which ordinarily prudent men would exercise under similar circumstances and in like positions; however, a director or officer shall not be held personally liable to the corporation or the shareholders thereof for monetary damages unless the director or officer acted in a grossly negligent manner as defined in Subsection B of this Section, or engaged in conduct which demonstrates a greater disregard of the duty of care than gross negligence, including but not limited to intentional tortious conduct or intentional breach of his duty of loyalty.

LA. R.S. § 12:91(A). Thus, officers or directors of a corporation

will be in breach of their fiduciary duties if they: (1) are

grossly negligent with respect to their duty of care, (2)

intentionally breach their duty of loyalty, or (3) intentionally

commit tortious conduct. Only the first two types of conduct have

been alleged in this case.

-8- First, AMD contends that Lapeyre was grossly negligent in

discharging his duties by accepting unwarranted fees for the

management of the AMD-owned department store in Houma. Section

91(B) of the LBCL defines “gross negligence” as “a reckless

disregard of or a carelessness amounting to indifference to the

best interests of the corporation or the shareholders thereof.” LA.

R.S. 12:91(B). Therefore, AMD must prove that Lapeyre recklessly

disregarded the best interests of the corporation in charging and

receiving payment of these management fees. See LA. R.S. 12:91(E)

(providing that a person alleging a breach of the duty of care owed

by an officer or director under Section 91(A) has the burden of

proving the alleged breach of duty).

Second, AMD argues that Lapeyre breached his duty of loyalty

by putting his own financial interests above those of the

corporation. When a director contracts with his corporation, those

dealings are subject to rigorous scrutiny. Levy v. Billeaud,

(La. 1983). An interested director has the burden

of proving his good faith, the inherent fairness of the contract

from the standpoint of the corporation, and that the contract was

essentially an arm’s length transaction. Church Point Wholesale

Beverage Co. v. Voitier,

(La. App. 3d Cir.

1998).

AMD contends that the management fees were excessive and thus

-9- violated both duties because: (1) the store paid for the employment

of a full-time manager; (2) Lapeyre allegedly only spent three

hours per month on the actual premises; and (3) the management of

the store has required very little time by the new manager

installed after the bankruptcy. Lapeyre counters, however, by

providing evidence that the management fees he received were

similar to the amounts received by AMD and Dupont Inc.’s managers

and directors before Lapeyre took over management of the store.

The bankruptcy court agreed with Lapeyre, finding that there

was no fiduciary breach because (1) AMD was aware that management

fees had been paid for managing the store from 1980 to 1984, even

before Lapeyre took over; (2) the fees paid after the Debtor became

President did not significantly differ from those paid from 1980

through 1984; and (3) Lapeyre was directly responsible for the

store, which took time away from his work at Euclid. Based on

these findings, the bankruptcy court concluded that Lapeyre’s

actions did not rise to the level of recklessness and that overall

there was no fiduciary breach.

We see no clear error in the bankruptcy court’s findings.

There is sufficient evidence to support the court’s conclusion that

these were reasonable management fees paid in return for rendered

services because other parties had received comparable compensation

for performing the same duties. The bankruptcy court also

reasonably found that Lapeyre satisfied his burden of proving good

-10- faith, that the fees were fair, and that it was an arm’s length

transaction because there was sufficient evidence that both

Lapeyre’s fees and responsibilities were comparable to what was

done before Lapeyre assumed control of the store’s management.

Accordingly, we affirm the bankruptcy court’s decision that AMD is

not entitled to reimbursement for the management fees paid to

Lapeyre and Euclid prior to AMD’s bankruptcy.

C. Post-Petition Management Fees

Next we consider whether AMD may be reimbursed for $105,725 in

management fees that Lapeyre paid to Euclid from AMD funds after

AMD filed for bankruptcy. The Lapeyre bankruptcy court held that

these transfers were not authorized by the AMD bankruptcy court,

and thus they were invalid post-petition transfers under

(a). Lapeyre challenges this ruling because the issue of

whether the transfers were authorized was neither tried nor

pleaded.

Rule 15(b) of the Federal Rules of Civil Procedure provides:

When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment.

Amendments based on Rule 15(b) are reviewed for abuse of

discretion. Triad Electric & Controls, Inc. v. Power Systems

Engineering, Inc.,

(5th Cir. 1997). AMD did not

-11- raise the issue of post-petition management fees in any pleading

and does not contend that this issue was tried by express consent.

Therefore, the question is whether the issue was tried with the

implied consent of the parties.

While the principal purpose of Rule 15(b) is judicial economy,

it will not be pursued at the expense of procedural due process.

“Thus, in the absence of express consent, ‘trial of unpled issues

by implied consent is not lightly to be inferred under Rule 15(b),

[and] such inferences are to be viewed on a case-by-case basis and

in light of the notice demands of procedural due process.’” Deere

& Co. v. Johnson,

(5th Cir. 2001) (quoting Triad

Electric,

).

In general, a finding of implied consent "depends on whether

the parties recognized that an issue not presented by the pleadings

entered the case at trial." Jimenez v. Tuna Vessel Granada,

(5th Cir. 1981). "Where a party does not recognize

the significance of evidence and so fails to contest it, he cannot

realistically be said to have given his implied consent to the

trial of unpled issues suggested by it, always assuming that his

failure to grasp its significance was reasonable." Id.; 6A CHARLES

ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 1493, at 468-69 (1990).

“When evidence is introduced that is relevant to a pleaded issue

and the party against whom the amendment is urged has no reason to

-12- believe a new issue is being injected into the case, that party

cannot be said to have impliedly consented to trial of that issue.”

Domar Ocean Trans., Ltd. v. Indep. Ref. Co.,

(5th Cir. 1986).

Here, the bankruptcy court found implied consent without

providing a basis for its decision. However, when the district

court affirmed, it specifically found that the following testimony

by Lapeyre at the trial constituted implied consent, which put at

issue whether the post-petition management fees had been judicially

authorized:

Q. Mr. Lapeyre, there is no and was never rendered any order of the bankruptcy court approving you to be paid $5,000 a month as management fees, was there? A. I didn't see an order, but Mr. Stacey was our attorney and it was an agreement between--he was representing the court, as far as I understood. Q. If there had been such an order, you would have brought it to court today? A. Today? Well, I would have given it to Mr. Hof, yes. Tr. 4/5/2000, at 65.

Lapeyre also stated that "those bills were part and parcel of the

bankruptcy reports. They were never questioned by the trustee, by

the attorneys, by Judge Brown or anybody." Tr. 4/5/2000, at 61. We

have reviewed the record, and are unable to ascertain any

additional evidence or testimony concerning this issue.

The record does not provide sufficient evidence from which it

reasonably could be found that the parties recognized that the

issue of whether the fees had been judicially authorized had

-13- entered the case at trial. First, AMD’s failure to raise a statute

of limitation’s defense to Lapeyre’s claim to the fees indicates

that the parties did not consider them to be in dispute. Section

549(d) of the Bankruptcy Code provides that an action contesting a

post-petition transfer “may not be commenced after ... the time the

case is closed or dismissed.”

(d). AMD’s

bankruptcy was closed in 1996. Whether the fees had been

authorized by the AMD bankruptcy court was not touched upon until

the foregoing testimony by Lapeyre in the bankruptcy proceedings in

April 2000. Despite the availability of a complete statute of

limitations bar to AMD’s claim of no authorization, Lapeyre did not

raise such a defense until after the bankruptcy court decision

requiring reimbursement by Lapeyre to AMD of these post-petition

management fees.

The scarcity of evidence indicating that the authorization of

post-petition management fees was put at issue, the bankruptcy

court’s lack of explanation for its decision, and Lapeyre’s failure

to assert his clear statute of limitations defense strongly tend to

prove that Lapeyre was not aware that the fee authorization issue

had been introduced in this case. Therefore, we find that it was

an abuse of discretion for the bankruptcy court to find that this

issue was tried by implied consent and that the district court

erroneously failed to reverse the bankruptcy court’s decision. For

the foregoing reasons, we conclude that the issue of whether the

-14- post-petition management fees paid to Lapeyre had been authorized

by the AMD bankruptcy court was not put at issue or tried by

implied consent. Therefore, we reverse the bankruptcy court’s

decision to award AMD $105,725 as reimbursement of unauthorized

post-petition management fees.

D. Research & Development Costs

In 1986, Lapeyre obtained a patent for an exercise machine

called the Exervision. On December 24, 1986, Lapeyre and AMD

entered into a franchise agreement, which the AMD Board

unanimously approved on January 17, 1987. Based on the franchise

agreement, AMD was to pay all costs of developing the patent held

by Lapeyre in return for receiving “100% net after taxes profits

generated in the State of Louisiana.” As a consequence, AMD spent

$459,710 to develop and produce the Exervision. Unfortunately,

these expenditures were not fruitful as the venture never proved

profitable. AMD contends that the sums spent on the project

breached Lapeyre’s fiduciary duty because (1) the franchise

agreement was grossly unfair and (2) Lapeyre failed to disclose

material information. The bankruptcy court disagreed, concluding

that the agreement was fair and that there was no fiduciary breach.

Under Louisiana law, a contract between a corporation and a

director of that corporation is valid if either (1) the board or

the shareholders approved the contract knowing the material facts

as to the director’s interest and the contract or transaction, or

-15- (2) the contract or transaction was fair to the corporation at the

time it was authorized, approved, or ratified by the board or the

shareholders. LA. R.S. §12.84(A).

Because there was sufficient evidence for the bankruptcy court

to find that the contract here was fair to AMD at the time it was

made, there is no clear error. Prior to entering into the

franchise agreement, Lapeyre informed the Board of the terms of the

agreement and the estimated costs for research and development.

AMD was responsible for all costs of developing the patent held by

Lapeyre, but was to receive “100% net after taxes profits generated

in the State of Louisiana.” Albert Dupont was a member of the AMD

Board of Directors at the time the Board approved the agreement.

He testified that in consideration for funding the research costs

of the project, AMD would be granted an exclusive Louisiana

franchise to market the device and would keep 100% of net after-tax

profits generated in Louisiana. In addition, Mr. Dupont also

testified that an additional purpose of the project was to minimize

AMD’s tax liability. After considering this information, the Board

unanimously approved the franchise agreement. Thereafter, Lapeyre

consistently kept the Board informed of the project’s progress at

every Board meeting for the next two years, and the Board never

complained or contested the expenditures.

Therefore, the terms of the agreement called for AMD to

participate in a project to take advantage of Lapeyre’s patent by

-16- paying the costs associated with developing the project. In

return, AMD would receive both an exclusive franchise in Louisiana

if the investment succeeded, as well as immediate tax benefits even

if the plan met with no success. The project’s ultimate failure

does not mean that the agreement was not fair at the time the

investment was made. Therefore, we do not find that the bankruptcy

court was clearly erroneous in determining that this contract was

fair, and we affirm its decision to deny AMD reimbursement for

these costs.

E. Business Expense Reimbursements

During his tenure as President of AMD, Lapeyre paid himself

$106,759, purportedly as reimbursement for business expenses,

including secretarial, travel, and automobile expenses. AMD seeks

return of these payments because they were not supported by

sufficient documentation. The bankruptcy court held that Lapeyre

violated Section 91 of the LBCL because he recklessly disregarded

his duty of care by presenting and accepting payments for which he

could not show justification. The court then rendered judgment in

favor of AMD. Lapeyre challenges this finding, alleging that the

burden is on AMD to prove that the expenses were improper.

Under Section 91 of the LBCL, AMD must prove that Lapeyre

breached his fiduciary duty of care in receiving improper expense

reimbursements. However, AMD reasonably satisfied this burden

-17- through the testimony of its expert witness, Charles Theriot, who

identified a number of expense reimbursements that were paid to

Lapeyre with little or no documentation. Lapeyre has offered no

documentation or other evidence to support the validity of these

expenses. Consequently, it was not clearly erroneous for the

bankruptcy court to conclude that Lapeyre breached his fiduciary

duty of care with respect to these alleged business expense

reimbursements. Therefore, we affirm the decision of the

bankruptcy court.

F. Loans

When AMD sued Lapeyre in state court for fiduciary breach,

Lapeyre owed AMD $258,605 and Euclid owed AMD $114,371 for advances

made by AMD. However, the AMD Board had authorized its directors,

including Lapeyre, to borrow only up to $100,000. The bankruptcy

court held that all loan amounts in excess of $100,000 were

unauthorized and that these unauthorized loans constituted a breach

of Lapeyre’s fiduciary duty. Although Lapeyre does not contest

that his receipt of the unauthorized loans was a fiduciary breach,

he contends that a $96,338 payment by Euclid to AMD should have

been credited to his, not Euclid’s, balance.

In December 1988, Euclid executed a note in favor of AMD for

-18- $128,679. In December 1989, Euclid issued a check for $96,338 to

AMD, but provided no instruction as to how the check should be

applied. AMD applied the check to Euclid’s debt, but Lapeyre now

argues that it should have been applied to his balance.

La. Civil Code article 1864 allows a debtor to provide

instructions as to which debt his payment should be imputed. But

if he fails to do so, the creditor may impute the payment, which

will stand if the debtor remains silent after learning of the

imputation. LA. CIV. CODE art. 1867; Marks v. Deutsch Constr. Co.,

(La. App. 4th Cir. 1972). Here, Lapeyre was silent

as to imputation from the time of the payment in 1989 until the

trial in 2000. Therefore, we affirm the bankruptcy court’s

decision as based on sufficient evidence to uphold AMD’s imputation

of the payment to Euclid’s debt.

G. Additional Offsets

Lapeyre also argues that he is entitled to certain offsets,

which would reduce the amount Lapeyre owes AMD for his fiduciary

breaches. Lapeyre seeks offsets for the following: (1) the

underpayment of post-petition management fees; (2) the nonpayment

of Secretary/Treasurer and Director fees; (3) the underpayment of

salary as President; (4) advances made by Euclid to AMD; and (5)

the nonpayment of oil and gas management fees. The bankruptcy

court denied these offsets, holding that (1) the underpayment of

management fees had been previously disallowed; (2) the

-19- Secretary/Treasurer and Director fees were unauthorized post-

petition transfers and were not disclosed in AMD’s bankruptcy; (3)

the underpayment of salary and the Euclid advances had already been

accounted for; and (4) Lapeyre presented no evidence concerning the

oil and gas management fees.

First, Lapeyre argues that he is entitled to an offset because

AMD failed to compensate him for some additional post-petition

management services he performed. However, Lapeyre presented no

proof that he disclosed or sought authority to perform or be

compensated for these particular post-petition management services.

Accordingly, we affirm the bankruptcy court’s decision to deny an

offset for these fees.

Second, Lapeyre is not entitled to an offset for

Secretary/Treasurer and Director fees allegedly due him because

these fee obligations were never disclosed to the AMD bankruptcy

court. Lapeyre’s argument that no authorization is needed for

compensation to insiders fails to consider

(a)(5)(B), which mandates that all compensation to insiders

must be disclosed to the court.

(a)(5)(B)(“The

court shall confirm a plan only if ... the proponent of the plan

has disclosed the identity of any insider ... and the nature of any

compensation for such insider.”). Here, Lapeyre has provided no

evidence that he disclosed to the AMD bankruptcy court that he was

owed Secretary/Treasurer or Director fees. These fees were not

-20- disclosed in either the AMD reorganization plan or the disclosure

statement. Therefore, the bankruptcy court did not clearly err in

deciding that he is not entitled to an offset for these fees.

For the same reason, Lapeyre is not entitled to an offset for

the alleged underpayment of $96,202 owed for his service as

President of AMD. These fees, like the Secretary/Treasurer and

Director fees, were not disclosed in either the AMD reorganization

plan or the disclosure statement.

Fourth, Lapeyre seeks an offset for $28,579 in advances that

his company Euclid made to AMD. These advances, however, were

taken into account by the bankruptcy court in determining the

amount Euclid owed AMD. The bankruptcy court held that Euclid owed

AMD $85,792 overall. Euclid originally owed AMD $114,371 ($83,037

in principal and $31,334 in interest), but when the $28,579 offset

is subtracted from this figure, the total equals $85,792, which is

the amount actually awarded to AMD. Consequently, we affirm the

decision of the bankruptcy court because Euclid and Lapeyre have

already received credit for this amount.

Finally, Lapeyre asks for an offset for on-site and oil and

gas management fees. The bankruptcy court denied offsets for these

fees because Lapeyre presented no evidence that these fees were

actually owed to him. The debtor has neither identified nor

provided any further evidence in support of these offsets and we

are unable to locate any. Therefore, we affirm the bankruptcy

-21- court in holding that Lapeyre has not proven that he is owed

payment for these fees.

Because we find that Lapeyre is not entitled to receive

offsets for any of the above items, we affirm this portion of the

bankruptcy court’s decision.

H. Litigation Costs & Expenses

AMD seeks reimbursement for litigation expenses for its

bankruptcy filing, contending that the costs of its bankruptcy

filing flowed directly from Lapeyre’s fiduciary breaches. The

bankruptcy court denied reimbursement, finding insufficient

evidence to support AMD’s contention. The bankruptcy court held

that the main reasons for the filing were the threatened

foreclosure by the Duponts and the decline in the Houma area

economy. Because it is not disputed that these were legitimate

reasons for AMD’s bankruptcy filing, we find no clear error and

affirm.

I. Prejudgment Interest

AMD also seeks an award of prejudgment interest for the amount

that is not dischargeable in bankruptcy,1 namely, (1) $244,397 in

improper loans, (2) $106,759 in improper expense reimbursements,

and (3) $14,400 in unpaid rents. The bankruptcy court did not

1 AMD also sought prejudgment interest for $105,725 in allegedly unauthorized post-petition fees. However, we do not need to consider prejudgment interest for these fees, as we have reversed the underlying award.

-22- discuss whether prejudgment interest should be awarded, but the

district court denied prejudgment interest on all claims. Lapeyre

contends that prejudgment interest is solely within the discretion

of the bankruptcy court. He argues that interest is only due

because the debts are not dischargeable, thus this is a federal

question, not a state law claim. Whether prejudgment interest

should have been awarded is an issue of law, which we review de

novo.

If a nondischargeable debt arises under state law, then the

award of prejudgment interest is governed by state law. In re

Niles,

(9th Cir. 1997). In bankruptcy

proceedings, where bankruptcy law fails to address a specific issue

and no strong federal interest is implicated, the Erie doctrine

will dictate the application of state law to underlying state law

claims. In re Omni Video, Inc.,

(5th Cir. 1995).

No bankruptcy or federal statute addresses the issue of prejudgment

interest and we are aware of no strong federal interest in denying

a party the right to prejudgment interest. Therefore, state law

will determine whether prejudgment interest is available for

nondischargeable debts premised on state law claims.

Regarding the improper loans, the district court denied

prejudgment interest because an appropriate interest rate has

already been taken into account. The note evidencing the

-23- indebtedness for the loans provided for a 9% annual interest rate,

and the $244,397 award includes this amount. The loans were found

improper because Lapeyre’s fiduciary breaches, which were based on

Louisiana law, therefore any award of prejudgment interest is also

based on Louisiana law. Under Louisiana law, the purpose of

prejudgment interest is to “fully compensate the injured party for

the use of funds to which he is entitled but does not enjoy because

the defendant has maintained control over the funds.” Sharbono v.

Steve Lang & Son Loggers,

(La. 1997). Article

2000 of the Louisiana Civil Code provides: “When the object of the

performance is a sum of money damages, damages for delay in

performance are measured by the interest on that sum from the time

it is due, at the rate agreed by the parties or, in the absence of

agreement, at the rate of legal interest....” Here, the object of

Lapeyre’s performance is to repay the amounts advanced by AMD. The

parties agreed to an interest rate of 9%, which has been included

in AMD’s recovery. Therefore, AMD is not entitled to any

additional prejudgment interest on this claim.

AMD also seeks prejudgment interest on improper expense

reimbursements and unpaid rent.2 Again, under Louisiana law, the

2 The bankruptcy court found that Euclid owed AMD $14,400 in accrued rent. Neither party has challenged this determination, but whether Lapeyre owes prejudgment interest on this amount is still before us because AMD requests prejudgment interest on all amounts it recovers.

-24- purpose of prejudgment interest is to make the plaintiff whole.

Prejudgment interest is “awarded to make an injured party whole by

compensating that party for the time-value of money to which that

party was entitled from the date set by the legislature, but over

which the defendant, in retrospect, had wrongfully continued to

exercise dominion and control while the suit was pending.”

Sharbono,

. Here, AMD must be compensated with

prejudgment interest for the time-value of the money Lapeyre

wrongfully held in order to be made whole and is entitled to

prejudgment interest on these claims.

We must next determine the time when prejudgment interest

begins to run. Prejudgment interest is “a necessary component of

the full reparation owed to an obligee who has been aggrieved.” 6

SAUL LITVINOFF, LA. CIVIL LAW TREATISE: THE LAW OF OBLIGATIONS § 9.13, at 264

(1999); Trans-Global Alloy v. First Nat’l Bank,

(La. 1991). La. Civil Code article 3005 states: “The mandatary

owes interest, from the date used, on sums of money of the

principal that the mandatary applies to his own use.” Therefore,

when managing the affairs of another, a person “who has converted

to his own use money belonging to the person whose affairs he

managed owes interest on that money from the time he converted it”.

LITVINOFF, supra, § 9.16, at 268. Corporate officers are mandataries

of the corporation. Bolding v. Eason Oil Co.,

(La.

-25- App. 4th 1965); Raymond v. Palmer,

(La. 1883).

Therefore, a corporate officer who uses the money or property of a

corporation for his own use will be liable for prejudgment interest

from the date used. See C & B Sales & Service, Inc. v. McDonald,

(5th Cir. 1996)(awarding prejudgment interest

against corporate officer for breach of fiduciary duty based upon

Louisiana law from date unauthorized profits were acquired).

Here, because both claims are based on Lapeyre’s

misappropriation of AMD’s money and property for his own use, he

owes prejudgment interest from the time he received these benefits.

Therefore, we reverse the decision denying prejudgment interest on

the improper expense reimbursements and accrued rent and remand to

the bankruptcy court for a determination of the amount of

prejudgment interest owed, pursuant to the foregoing principles.

J. Dischargeability

In a Chapter 7 proceeding, the debts of the bankrupt will be

discharged, unless they are classified as nondischargeable. Based

on

(a)(4), the bankruptcy court found that Lapeyre’s

debts (except for the initial $100,000 loan) were not

dischargeable. Lapeyre’s contends that his debt to AMD is

dischargeable because corporate officers do not fall within the

concept of fiduciary duty under § 523(a)(4). This raises an issue

of law, which we review de novo.

-26- Under

(a)(4), a debt “for fraud or defalcation

while acting in a fiduciary capacity, embezzlement or larceny,” may

not be discharged in bankruptcy. In order for this provision to

apply, the debtor must: (1) commit defalcation and (2) act in a

fiduciary capacity.

First, it is clear that Lapeyre committed defalcation.

“Defalcation” is a “willful neglect of duty, even if not

accompanied by fraud or embezzlement.” In re Moreno,

(5th Cir. 1990). In this circuit, “willful neglect” is

“essentially a recklessness standard.” In re Schwager,

(5th Cir. 1997). Therefore, if a debtor acts recklessly

while acting in a fiduciary capacity, then those debts will not be

dischargeable. In this case, Lapeyre’s fiduciary breaches satisfy

this recklessness standard because, under Louisiana law, a breach

of the fiduciary duty requires a finding of recklessness. See LA.

R.S. 12:91.

Second, Lapeyre’s defalcation occurred while he was acting in

a fiduciary capacity for the purposes of §523(a)(4). Under

§523(a)(4), the concept of fiduciary duty is narrowly defined,

applying only to technical or express trusts. In re Angelle,

(5th Cir. 1980). In addition, to form a valid

trust (1) the trust relationship must exist prior to the act

creating the debt and without reference to that act, and (2) trust-

-27- like obligations must be imposed.

. These

requirements may be satisfied by statute or by common law. In re

Bennett,

, 784-85 (5th Cir. 1993).

This court in In re Moreno held that the officer of a

corporation acting in his capacity as a corporate officer was a

fiduciary for purposes of §523(a)(4).

. Similarly,

in In re Bennett, we held that the general partner of a limited

partnership was also a fiduciary for purposes of this section. 989

F.2d at 787. In Bennett, we noted that both general partners and

corporate officers had the duty to administer the affairs of their

respective organizations solely for the benefit of that

organization and that neither was permitted to place himself in a

position where it would be for his own benefit to violate this

duty. Id. The Bennett court concluded that these “obligations are

more than a fiduciary relationship created in response to some

wrongdoing,” and thus these positions met the narrow requirements

for nondischargeability under §523(a)(4). Id.

Lapeyre was also subject to these same duties as President of

AMD. Therefore, he was acting in a fiduciary capacity for the

purposes of §523(a)(4). Because he committed defalcation while

acting in this fiduciary capacity, we affirm the bankruptcy court’s

finding and hold that Lapeyre’s debts to AMD are not dischargeable

in bankruptcy.

-28- IV. CONCLUSION

For the foregoing reasons, we reverse the bankruptcy court’s

decision to award $105,725 to AMD as reimbursement for post-

petition management fees paid to Lapeyre, and we reverse that

court’s refusal to award AMD prejudgment interest for Lapeyre’s

improper expense reimbursements and unpaid rent. We AFFIRM the

bankruptcy court’s judgment in all other respects. Accordingly, we

AFFIRM IN PART, REVERSE IN PART, and REMAND the case to the

bankruptcy court solely for determination of the amount of

prejudgment interest owed to AMD.

-29-