Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

Articles Posted in Bankruptcy
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Following the bankruptcy court’s confirmation of its reorganization plan, Highland Capital Management, L.P. filed a motion with the bankruptcy court seeking entry of an order authorizing the creation of an indemnity subtrust. Over several objections, the bankruptcy court entered an order approving the motion. Several objectors appealed, arguing that the order impermissibly modified the plan. Dugaboy, NexPoint, and HCMFA (collectively, “Appellants”), as well as Dondero, objected to the motion, arguing that it was a modification to the Plan requiring solicitation, voting, and confirmation under § 1127(b) of the Bankruptcy Code. The bankruptcy court disagreed and granted the motion in an order authorizing the creation of the Indemnity Sub-Trust on July 21, 2021 (the “Order”). The district court affirmed the bankruptcy court’s order and dismissed several of Appellants from the appeal. Appellants then sought review in this court.   The Fifth Circuit dismissed in part and affirmed in part the district court’s judgment. The court explained that Appellants’ statement of the issues on appeal includes the district court’s affirmance of the Order; however, it does not include the district court’s partial dismissal of the appeal on the basis that HCMFA and Dugaboy lacked standing. Therefore, Appellants did not preserve for appeal a challenge to the district court’s partial dismissal below for lack of standing. The appeals of HCMFA and Dugaboy remain dismissed below and, for this reason, they must be dismissed from the current appeal as well. View "Highland Captl v. Highland Captl Mgmt" on Justia Law

Posted in: Bankruptcy
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Electric Reliability Council of Texas, Inc. (“ERCOT”) determines market-clearing prices unless otherwise directed by the Public Utility Commission of Texas (“PUCT”). ERCOT is the sole buyer and seller of all energy in Texas. According to the operative complaint, during winter storm Uri ERCOT and the PUCT allegedly “intervened in the market for wholesale electricity by setting prices [that were] orders of magnitude higher than what market forces would ordinarily produce.”   Just Energy, a retail energy provider, purports that after the storm, ERCOT “floored” it with invoices totaling approximately $335 million. Just Energy commenced bankruptcy proceedings in Canada and filed this Chapter 15 case in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. Just Energy challenges its invoice obligations. At the hearing on ERCOT’s motion to dismiss, the bankruptcy court stated that it would strike various language like, “subject to reduction only after a finding by the Court concerning a legally appropriate energy price per megawatt hour as proven by expert testimony, if appropriate, but in no event greater than the price per megawatt hour in effect after market forces took effect.” By striking this and similar language sprinkled throughout the complaint, the court concluded that “this change solves the abstention problem.”    The Fifth Circuit disagreed and vacated the bankruptcy court’s order and remanded with instructions to determine the appropriate trajectory of this case after abstention. The court explained that abstention under Burford6\ is proper because: (1) the doctrine applies in the bankruptcy context; and (2) four of the five Burford factors counsel in favor of abstention. View "Electric Reliability v. Just Energy" on Justia Law

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Appellant Sanare Energy Partners, L.L.C. agreed to purchase a mineral lease and related interests from Appellee PetroQuest Energy, L.L.C. Later, PetroQuest filed bankruptcy, and Sanare filed an adversary suit in that proceeding. Sanare argued that the lack of certain third-party consents rendered PetroQuest liable for costs associated with some “Assets” whose transfer the sale envisioned. The bankruptcy court and the district court each disagreed with Sanare.   The Fifth Circuit affirmed. The court explained that the Properties are “Assets” under the PSA, including section 11.1, even if the Bureau’s withheld consent prevented record title for the Properties from transferring to Sanare. This conclusion is plain from the PSA’s text, which excludes Customary Post-Closing Consents such as the Bureau’s from the category of consent failures that alter the parties’ bargain. Consent failures that do not produce a void-ab-initio transfer also do not alter the parties’ bargain, so the Agreements, too, are Assets under the PSA’s plain text. View "Sanare Energy v. Petroquest" on Justia Law

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Ultra Petroleum Corp. (HoldCo) and its affiliates, including its subsidiary Ultra Resources, Inc. (OpCo), entered Chapter 11 bankruptcy deep in the hole. But during the bankruptcy process, these debtors (collectively, Ultra) hit it big—as natural gas prices soared, they became supremely solvent. Ultra proposed a $2.5 billion bankruptcy plan. It provided that OpCo’s creditors would be paid—in full and in cash—their outstanding principal and all interest that had accrued before bankruptcy, plus interest on both at the Federal Judgment Rate for the duration of the bankruptcy proceeding. Two groups of creditors complain that the plan falls some $387 million short.   The issue on appeal is whether the Bankruptcy Code precludes the creditors’ claims for the Make-Whole Amount; second, even if it does, whether the traditional solvent-debtor exception applies; and third, whether post-judgment interest is to be calculated at the contractual or Federal Judgment rate.   The Fifth Circuit affirmed the bankruptcy court’s judgment. The court held the Bankruptcy Code disallows the Make-Whole Amount as the economic equivalent of unmatured interest. But because Congress has not clearly abrogated the solvent-debtor exception, the court held that it applies to this case. And the solvent-debtor exception demands that Ultra pay what it promised now that it is financially capable. The court further held, given Ultra’s solvency, post-petition interest is to be calculated according to the agreed-upon contractual rate. View "Ultra Petro Corp v. Ad Hoc Com" on Justia Law

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Appellant in his capacity as Litigation Trustee for the Erickson Litigation Trust, appeals the dismissal of his avoidance and recovery claims under the bankruptcy laws. In broad terms, these claims seek avoidance of settlement releases approved in Delaware state court, as well as two payments related to Erickson Air-Crane, Inc.’s acquisition of Evergreen Helicopters, Inc. (EHI) (the “Evergreen Transaction”).   The Fifth Circuit affirmed the dismissal of the claims relating to the settlement releases and reversed in part the dismissal of the payments relating to the Evergreen Transaction itself. The court concluded that consistent with Besing and Erlewine, there was reasonable equivalence as a matter of law. The Delaware settlement “should not be unwound by the federal courts merely because of its unequal division of [settlement proceeds].” Further, the court wrote that Appellant’s attempt to attack the Delaware releases as actually fraudulent transfers also fails. The court wrote it saw no error in the lower court's conclusion that Appellant failed to adequately plead actual fraud, and his arguments on appeal do not convince the court otherwise. Moreover, the court found that acting in his specific capacity, Appellant is not enjoined by the Delaware settlement from asserting creditor claims that arose only under the Bankruptcy Code. View "Ogle v. Morgan, et al" on Justia Law

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The Fifth Circuit affirmed the district court’s order denying Klairmont Korners, L.L.C. (“Klairmont”) claim that a debtor’s decision to reject a commercial lease pursuant to 11 U.S.C. Section 365 should not receive deference under the business judgment rul Klairmont Korners, L.L.C. (“Klairmont”) appeals a district court order denying its claim that a debtor’s decision to reject a commercial lease pursuant to 11 U.S.C. Section 365 should not receive deference under the business judgment rule because of “bad faith, whim, or caprice” inherent in a third party’s negotiations with Klairmont.   The Fifth Circuit affirmed. The court explained that Klairmont’s contentions fail under this court’s own standard for overcoming the business judgment rule, as well as the “bad faith” test Klairmont encourages us to adopt. The court explained that Klairmont’s position is untenable, even under the test it proposes the court adopt from another circuit, under which courts should not defer to a debtor’s decision under Section 365 that is “the product of bad faith, or whim, or caprice.” Klairmont misunderstands this standard, urging the court to hold that any bad faith involved in the bankruptcy proceedings should prompt a bankruptcy court to decline a debtor’s decision regarding an executory contract. That is not the test these other courts have adopted. Klairmont will not find relief in asserting that the debtor’s decision deserves no deference under the business judgment rule.     . View "Klairmont Korners, L.L.C." on Justia Law

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Highland Capital Management, L.P., a Dallas-based investment firm, managed billion-dollar, publicly traded investment portfolios for nearly three decades. However, myriad unpaid judgments and liabilities forced Highland Capital to file for Chapter 11 bankruptcy. This provoked a breakup between Highland Capital and its co-founder. Under those trying circumstances, the bankruptcy court successfully mediated with the largest creditors and ultimately confirmed a reorganization plan amenable to most of the remaining creditors. The co-founder and other creditors unsuccessfully objected to the confirmation order and then sought review in this court. In turn, Highland Capital moved to dismiss their appeal as equitably moot.   The Fifth Circuit first held that equitable mootness does not bar the court’s review of any claim. Second, the court affirmed the confirmation order in large part. The court reversed only insofar as the plan exculpates certain non-debtors in violation of 11 U.S.C. Section 524(e), strike those few parties from the plan’s exculpation, and affirm on all remaining grounds.   The court explained that in sum, the court’s precedent and Section 524(e) require any exculpation in a Chapter 11 reorganization plan be limited to the debtor, the creditors’ committee and its members for conduct within the scope of their duties and the trustees within the scope of their duties. And so, excepting the Independent Directors and the Committee members, the exculpation of non-debtors here was unlawful. View "NexPoint v. Highland Capital Management" on Justia Law

Posted in: Bankruptcy
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Highland Capital Management, L.P., a Dallas-based investment firm, managed billion-dollar, publicly traded investment portfolios for nearly three decades. By 2019, however, myriad unpaid judgments and liabilities forced Highland Capital to file for Chapter 11 bankruptcy. This provoked a breakup between Highland Capital and its co-founder. The bankruptcy court successfully mediated with the largest creditors and ultimately confirmed a reorganization plan amenable to most of the remaining creditors. The co-founder and other creditors unsuccessfully objected to the confirmation order and then sought review. In turn, Highland Capital moved to dismiss their appeal as equitably moot.The Fifth Circuit denied Highland Capital’s motion to dismiss the appeal as equitably moot. The court held that equitable mootness does not bar our review of any claim. Second, the court affirmed the confirmation order in large part. The court reversed only insofar as the plan exculpates certain non-debtors in violation of 11 U.S.C. Section 524(e), strikes those few parties from the plan’s exculpation, and affirm on all remaining grounds. View "NexPoint v. Highland Capital Management" on Justia Law

Posted in: Bankruptcy
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After the bankruptcy court confirmed Falcon V’s reorganization plan, Argonaut Insurance Company asked the court to interpret the plan, arguing primarily that a $10.5 million suretyship agreement was an “executory contract” and that the reorganized Falcon V had therefore assumed the agreement under the reorganization plan’s express terms. The bankruptcy court concluded that Falcon V had not assumed the agreement and disallowed Argonaut’s $7.3 million unsecured claim against Falcon V. The district court affirmed the judgment of the bankruptcy court.On appeal, Argonaut primarily argues that the bankruptcy and district courts erred in determining that the Surety Bond Program was not assumed under the Plan. The Fifth Circuit affirmed. The court explained that the Surety Bond Program does not satisfy the Countryman test’s second requirement. Accordingly, it is not an executory contract, and the bankruptcy and district courts correctly determined that it was not assumed under the Plan. View "Argonaut Insurance v. Falcon V" on Justia Law

Posted in: Bankruptcy
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The Federal Energy Regulatory Commission (“FERC”), anticipating Petitioner Gulfport Energy Corporation’s (“Gulfport”) insolvency, issued four orders purporting to bind the petitioner to continue performing its gas transit contracts even if it rejected them during bankruptcy. Petitioner asked the Fifth Circuit to vacate those orders. The court granted the petitions and vacated the orders holding that FERC cannot countermand a debtor’s bankruptcy-law rights or the bankruptcy court’s powers.   Gulfport attacked attacks FERC’s orders on two fronts. Gulfport first says that FERC lacked authority to issue them. It then contends that the orders are unlawful because they violate the Bankruptcy Code and purport to restrain Gulfport’s bankruptcy-law rights and the powers of the bankruptcy court. The court explained that FERC did have authority to issue the orders. But because the orders rested on an inexplicable misunderstanding of rejection, the court must vacate them all. The court wrote that each order rests on the incorrect premise that rejecting a filed-rate contract in bankruptcy is something more than a breach of contract.   The court further wrote that FERC can decide whether actual modification or abrogation of a filed-rate contract would serve the public interest. It even may do so before a bankruptcy filing. But rejection is just a breach; it does not modify or abrogate the filed rate, which is used to calculate the counterparty’s damage. So FERC cannot prevent rejection. It cannot bind a debtor to continue paying the filed rate after rejection. And it cannot usurp the bankruptcy court’s power to decide Gulfport’s rejection motions. View "Gulfport Energy Corporation v. FERC" on Justia Law