Co-Owner Standing Under § 523(a)(4) for Embezzled Company Funds and Contract Ambiguity Where a Referenced Exhibit Is Missing

Case: DiBassie v. Reeves (In the Matter of Michele Anita DiBassie, Debtor)
Court: United States Court of Appeals for the Fifth Circuit
Date: February 3, 2026
Disposition: Affirmed (unpublished; 5th Cir. R. 47.5)

1. Introduction

The dispute arose from the collapse of a concrete business relationship between Christopher Reeves and Michele Anita DiBassie involving SCS Repair Group, LLC (“SCS”), an entity formed under Puerto Rico law though the principals resided in Texas. At DiBassie’s suggestion, her daughter, Emilynn, was listed as an SCS member in the LLC agreement instead of DiBassie; Reeves agreed to that structure. The operating documents referenced an “Exhibit A” meant to set out capital contributions and ownership interests, but the record contained multiple inconsistent versions of SCS documents, including differing “Exhibit A” pages and versions of the LLC agreement with and without attachments.

After SCS generated substantial revenue, Reeves sought job-costing information to calculate profits and distributions. DiBassie refused, contending Reeves was overpaid and not a 50% owner. Reeves then wrote himself a check from an SCS account (as a signatory), after which DiBassie cut off his access and removed him from the bank account. Reeves sued in state court; the matter became an adversary proceeding when DiBassie filed bankruptcy.

Reeves pursued nondischargeability under 11 U.S.C. § 523(a)(4) (fraud/defalcation in a fiduciary capacity, embezzlement, or larceny). After a bench trial, the bankruptcy court found DiBassie not credible, found Emilynn a nominal member, treated Reeves and DiBassie as the true 50/50 owners, and concluded DiBassie embezzled SCS funds by transferring them to another entity she wholly owned. The bankruptcy court entered a nondischargeable judgment of $299,980.98, affirmed by the district court.

On appeal to the Fifth Circuit, DiBassie challenged two points: (1) Reeves’s standing to bring the embezzlement-based nondischargeability claim because the funds belonged to SCS; and (2) the conclusion that the LLC agreement was ambiguous regarding ownership percentages.

2. Summary of the Opinion

The Fifth Circuit affirmed. It held that Reeves had standing because the Bankruptcy Code defines “claim” extremely broadly, and Reeves’s asserted (and ultimately found) ownership interest in SCS gave him a right to payment arising from DiBassie’s embezzlement of funds in which he held an interest. Thus, Reeves qualified as a “creditor” under 11 U.S.C. § 101(10).

The court also affirmed the ambiguity finding. Although the LLC agreement referenced “Exhibit A attached hereto,” the operative version contained no attachments and the evidence showed multiple, conflicting Exhibit A iterations and testimony that Exhibit A may not have existed at signing. Under Texas law, considering the contract as a whole and the circumstances at execution, the agreement was reasonably susceptible to more than one meaning regarding ownership interests; therefore, it was ambiguous and parol evidence could be used to determine intent.

3. Analysis

3.1 Precedents Cited

Appellate posture and standards of review.

• Kreit v. Quinn (In re Cleveland Imaging & Surgical Hosp., L.L.C.), 26 F.4th 285 (5th Cir. 2022): The Fifth Circuit reiterated that it reviews a district court’s bankruptcy appellate decision by applying the same standards the district court applied—reviewing bankruptcy legal conclusions de novo and factual findings for clear error. This framing mattered because DiBassie’s challenges straddled law (standing; contract ambiguity) and fact (what documents controlled; what the parties intended).
• Edwards Fam. P'ship v. Johnson (In re Cmty. Home Fin. Servs., Inc.), 990 F.3d 422 (5th Cir. 2021): Cited within the standard-of-review discussion to confirm de novo review for legal conclusions and clear-error review for factual findings.
• Burgess v. Sikes (In re Burgess), 438 F.3d 493 (5th Cir. 2006) and State Farm Life Ins. Co. v. Swift (In re Swift), 129 F.3d 792 (5th Cir. 1997): Used to classify certain property-of-estate determinations as questions of law. Although the appeal was not a classic estate-property dispute, these authorities reinforced the court’s willingness to treat definitional bankruptcy questions as legal, reviewed de novo.
• WBCMT 2007 C33 OFFICE 9720, L.L.C. v. NNN Realty Advisors, Inc., 844 F.3d 473 (5th Cir. 2016): Confirmed that, under Texas law, contract interpretation and the ambiguity determination are legal questions. This was central because DiBassie’s second issue was a pure ambiguity argument.

Standing and the breadth of “claim” under the Bankruptcy Code.

• Johnson v. Home State Bank, 501 U.S. 78 (1991): Provided the Supreme Court’s statement that Congress intended “to adopt the broadest available definition of ‘claim.’” The Fifth Circuit used this to reject DiBassie’s narrow framing that Reeves lacked a claim because SCS, not Reeves, was the immediate victim of embezzlement. The citation anchored the court’s interpretive posture: “claim” is capacious, and the inquiry is functional—whether there is a “right to payment.”
• Southmark Corp. v. Schulte Rothe & Zabel (In re Southmark Corp.), 88 F.3d 311 (5th Cir. 1996): Reinforced that “all legal obligations of the debtor, no matter how remote or contingent” can be addressed in bankruptcy, quoting the House and Senate Reports. This supported treating Reeves’s asserted ownership-based entitlement as a bankruptcy “claim,” even if disputed and not yet reduced to judgment when bankruptcy was filed.
• Humphries v. Rogers (In re Humphries), 516 B.R. 856 (Bankr. N.D. Miss. 2014): Functioned as the most factually analogous authority. There, a 50% owner of a closely held corporation embezzled corporate funds; the bankruptcy court found the other owner had an interest in those funds sufficient to support a nondischargeable debt under § 523(a)(4). The Fifth Circuit treated this as persuasive confirmation that co-ownership can translate into a personal stake in misappropriated entity funds for nondischargeability purposes.

Texas contract ambiguity and parol evidence.

• Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. CBI Indus., Inc., 907 S.W.2d 517 (Tex. 1995): Supplied the governing framework: ambiguity is assessed by examining the contract as a whole in light of circumstances when executed; parol evidence cannot be used to create an ambiguity but may be used to ascertain the parties’ true intent as expressed in the agreement once ambiguity is found.
• Anglo-Dutch Petroleum Int'l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445 (Tex. 2011): Reinforced the “circumstances present when the contract was entered” approach to interpreting and evaluating ambiguity.
• Coker v. Coker, 650 S.W.2d 391 (Tex. 1983): Provided the classic definition: a contract is ambiguous if it is “reasonably susceptible to more than one meaning.” The Fifth Circuit relied on this to validate the ambiguity finding where an “Exhibit A” was referenced but absent and the record contained conflicting candidate exhibits.

3.2 Legal Reasoning

(A) Standing: why Reeves qualified as a “creditor.”

The court treated “standing” in practical bankruptcy terms: whether Reeves was a “creditor” entitled to seek a nondischargeability determination. The operative statutory chain was:

• 11 U.S.C. § 523(a)(4): excepts from discharge debts “for ... embezzlement” (among other categories).
• 11 U.S.C. § 101(10)(A) and § 101(15): define a “creditor” as one who has a “claim” against the debtor that arose prepetition.
• 11 U.S.C. § 101(5)(A): defines “claim” as any “right to payment,” including disputed, contingent, unliquidated, and unmatured rights.

DiBassie’s argument assumed that only SCS could complain about theft of SCS funds (i.e., that any injury was purely entity-level). The Fifth Circuit rejected that as too narrow given (i) the breadth of “claim” (per Johnson v. Home State Bank and In re Southmark Corp.), and (ii) the bankruptcy court’s factual finding that Reeves was a 50% owner and DiBassie diverted funds in which Reeves had an ownership interest. On that view, Reeves had a personal “right to payment” from DiBassie arising from the embezzlement, which is sufficient to render him a “creditor.”

Notably, the panel did not frame the issue in corporate-law derivative-suit terminology. Instead, it accepted that ownership interest in a closely held venture—together with diversion of company funds to the debtor’s wholly owned entity—can support a direct bankruptcy “claim” by the co-owner for nondischargeability purposes.

(B) Ambiguity: why the “Exhibit A attached hereto” reference did not end the inquiry.

DiBassie’s textual argument was straightforward: the LLC agreement referenced “Exhibit A attached hereto,” so ownership terms were (in her view) fixed and unambiguous. The Fifth Circuit affirmed the bankruptcy and district courts’ contrary conclusion because the record evidence made the reference indeterminate:

• The controlling executed version (as found by the bankruptcy court) contained no attachments at all, despite the reference to Exhibit A.
• The parties offered multiple versions of Exhibit A with differing membership, capital contribution, and “ownership unit” allocations.
• Testimony indicated Exhibit A may not have existed at the time of signing, and there may have been no definite agreement on percentages then.

Under Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. CBI Indus., Inc. and Anglo-Dutch Petroleum Int'l, Inc. v. Greenberg Peden, P.C., Texas law allows a court to evaluate the contract “in light of the circumstances present when the contract was entered.” Given that the “Exhibit A” reference pointed to something that was absent from the operative document and was contradicted by inconsistent candidate exhibits, the agreement was “reasonably susceptible to more than one meaning” (per Coker v. Coker) regarding ownership, i.e., ambiguous. That ambiguity permitted the use of parol evidence to ascertain intent (without using parol evidence to manufacture ambiguity).

3.3 Impact

1) Bankruptcy nondischargeability litigation (standing and entity funds).

Even though the opinion is unpublished, its reasoning is instructive in Fifth Circuit practice: defendants in § 523(a)(4) cases often attempt to defeat claims by characterizing allegedly embezzled property as belonging solely to an entity (LLC/corporation), not to the plaintiff individually. This case demonstrates a pathway around that defense where the plaintiff can prove an ownership interest and show that diverted funds implicated that interest, creating a personal “right to payment” broad enough to qualify as a bankruptcy “claim.”

The citation to Humphries v. Rogers (In re Humphries) signals receptiveness—at least on these facts—to treating co-owners in closely held businesses as having a sufficiently direct stake in misappropriated business funds to support nondischargeability.

2) Contract drafting and litigation (missing exhibits and “form” agreements).

On the contract side, the decision underscores a recurring problem in closely held business formations: “Exhibit A” and similar schedules are often referenced in template operating agreements but are not actually finalized, attached, or consistently maintained. The court’s affirmance indicates that:

• A mere reference to an exhibit does not guarantee clarity if the executed version lacks the exhibit and the surrounding evidence is conflicting.
• When attachments are missing or inconsistent, Texas courts may find ambiguity and allow parol evidence to determine the parties’ intended ownership arrangement.

3) Procedural incentives.

The bankruptcy court’s strong credibility findings (including findings of forged documents and discovery abuses) formed an important factual backdrop. Although the Fifth Circuit resolved the appealed issues as legal matters, litigants should recognize that document integrity and credibility can indirectly shape which “version” of an agreement is accepted as operative—thereby influencing whether ambiguity exists and whether parol evidence becomes dispositive.

4. Complex Concepts Simplified

• “Standing” in this context: Whether Reeves was the right kind of party (a “creditor”) who could ask the bankruptcy court to declare a debt nondischargeable. The court said yes because the Bankruptcy Code defines “claim” (and thus “creditor”) very broadly.
• “Claim” and “creditor” under the Bankruptcy Code: A “claim” is any “right to payment,” even if disputed or not yet reduced to judgment. If you have a claim against the debtor that arose before bankruptcy, you are a “creditor.”
• § 523(a)(4) “embezzlement”: A category of misconduct that can make a debt survive bankruptcy discharge. Here, the key factual premise was that DiBassie transferred company funds to an entity she wholly owned.
• “Ambiguous contract” (Texas law): A contract is ambiguous if it can reasonably be read in more than one way. If ambiguous, courts may consider “parol evidence” (outside-the-document evidence like testimony and surrounding circumstances) to determine intent.
• “Parol evidence” rule (as applied here): Outside evidence cannot be used to create ambiguity where none exists, but once ambiguity is found, outside evidence can be used to interpret the agreement’s intended meaning.

5. Conclusion

DiBassie v. Reeves affirms two practically significant principles in bankruptcy disputes arising from closely held businesses. First, a co-owner may have standing to pursue a nondischargeability claim under § 523(a)(4) for embezzlement of business funds when the debtor’s diversion of those funds gives the co-owner a personal “right to payment,” fitting within the Bankruptcy Code’s intentionally broad definition of “claim.” Second, under Texas contract law, an LLC agreement referencing a defining “Exhibit A” can nonetheless be ambiguous where the operative executed version lacks the exhibit and the record contains conflicting or inconclusive evidence about what the exhibit was (or whether it existed) at execution—permitting parol evidence to determine intended ownership.

While unpublished and therefore not designated as binding precedent, the opinion provides a clear roadmap for litigants: ownership-based entitlement can support creditor status for § 523(a)(4) purposes, and sloppy or inconsistent formation paperwork can turn “fixed” ownership terms into an ambiguity to be resolved by extrinsic proof.