Fifth Circuit Certifies Texas LLC Exemption Question to State Supreme Court

The Fifth Circuit Court of Appeals, in Case No. 25-10548, has certified a question to the Supreme Court of Texas concerning the exemption status of a membership interest in a Texas limited liability company (LLC) within a federal bankruptcy proceeding. The debtor, William R. Canada Jr., claims his 70% ownership in DA D Drilling, LLC, is exempt, while the bankruptcy trustee, Daniel J. Sherman, objects. Both the bankruptcy court and the district court denied the exemption, finding no explicit provision in Texas law for such an exemption.

This certification means the Fifth Circuit is deferring to the Texas Supreme Court for a definitive interpretation of Texas state law. Regulated entities, particularly those involved in bankruptcy proceedings in Texas, should monitor the outcome of this certification, as it could significantly impact the treatment of LLC interests in future bankruptcy cases. No immediate compliance action is required, but the ruling will provide clarity on Texas exemption laws.