The borrower entered into a loan agreement with the bank. The loan was secured by used equipment and 200 head of cattle (the “collateral”). In September 2019, the bank conducted an inspection of its collateral and found that some of it was no longer in the borrower's possession (the borrower later acknowledged that it had sold some of the collateral). The bank then demanded repayment of the loan in full on November 22, 2019. A few days later, the borrower filed for Chapter 7 bankruptcy. In January 2020, while the automatic stay was in place, the bank contacted the special ranger of the Texas and Southwestern Cattle Raisers Association (TSCRA) about the theft of its collateral, which the special ranger investigated. The bankruptcy court entered a discharge order in February 2020. A few months later (in the summer of 2020), the special ranger arrested the borrower “on charges of hindering a secured creditor” pursuant to Tex. Penal Code § 32.33(b). The borrower then initiated an adversary proceeding in bankruptcy court against the bank for violations of the automatic stay and the discharge injunction as a result of the bank contacting the TSCRA. The bank moved for summary judgment, arguing under the safe harbor provision of 31 U.S.C. § 5318(g)(3), it was not liable for either claim. The bankruptcy court granted summary judgment in favor of the bank. The borrower appealed to the district court, which affirmed the bankruptcy court. The borrower then appealed to the Fifth Circuit.
In Kerns v. First State Bank of Ben Wheeler (In Re Kerns), 130 F.4th 455 (5th Cir. 2025), the Fifth Circuit affirmed the bankruptcy court and district court. The Annuzio-Wylie Act allows financial institutions to report any “suspicious transactions that may violate any law or regulation.” 106 Stat. 3672, Title XV, §§ 1504(d)(1). Additionally, Congress included a safe harbor provision to limit liability from such disclosures. The safe harbor provision provides that “[a]ny financial institution that makes a voluntary disclosure of any possible violation of law or regulation…shall not be liable to any person under any law or regulation of the United States…for such disclosure or for failure to provide notice of such disclosure.” 31 U.S.C. § 5318(g)(3). The court held that the safe harbor provision of the Annuzio-Wylie Act applied here because the bank was a financial institution that “made a voluntary report of a possible crime to local law enforcement that would have otherwise made the bank liable for a violation of the automatic stay and discharge of debt.” Moreover, the court reasoned that it considered the TSCRA special ranger to be law enforcement because special rangers hold the “same powers as peace officers when investigating their area of authority (theft of livestock or related property).” The court concluded that, in this instance, the agent acted within his authority. Finally, the borrower raised, for the first time, on appeal, that the bankruptcy judge should have recused himself from the proceeding. The court, however, held that, because the borrower knew or should have known of the bankruptcy judge’s involvement in his underlying bankruptcy case, and failed to raise the issue, the borrower had forfeited that argument. Therefore, the Fifth Circuit affirmed the bankruptcy court’s decision to grant summary judgment in favor of the bank.
By Bryant Breckenridge [email protected]
Edited By Olivia Lewis [email protected]
Edited By Kristin Meurer [email protected]
Edited By Hayden Mariott [email protected]