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

Roy Hill, founder and CEO of Clean Energy Technology Association, Inc. (CETA), solicited investments by representing that CETA owned patented carbon capture technology and promised investors returns from these assets. CETA, however, operated as a Ponzi scheme, using funds from new investors to pay returns to earlier ones. UniBank, a Washington-based commercial bank, provided secured loans to investors who used the funds to buy interests in CETA’s purported assets. UniBank perfected its security interests in the distributions from CETA. After the SEC initiated an enforcement action alleging fraud and sought appointment of a receiver, Albert Black was appointed to marshal CETA’s assets for the benefit of creditors and investors.In parallel litigation, investors sued UniBank in Washington state court for fraud and negligence, but UniBank obtained summary judgment on the basis that it owed no duty to the investors. Meanwhile, in the United States District Court for the Western District of Texas, the receiver recommended a pro rata distribution of the remaining CETA estate funds to all investors and creditors based on net cash losses, aggregating UniBank’s claims with those of other victims rather than honoring UniBank’s asserted secured creditor priority. UniBank objected, arguing its perfected liens should grant it priority recovery. The district court overruled UniBank’s objection, adopted the receiver’s recommendation, and ordered pro rata distributions.On appeal, the United States Court of Appeals for the Fifth Circuit reviewed the district court’s order. The Fifth Circuit held that the district court failed to provide UniBank with adequate due process because it adopted the receiver’s recommendation with only a cursory analysis and without giving UniBank a meaningful opportunity to present its evidence and arguments, particularly given the extensive record. The court vacated the district court’s order and remanded for further proceedings consistent with due process requirements, without expressing a view on the merits. View "Black v. Unibank" on Justia Law

Highland Capital Management, L.P. and HCRE Partners (now NexPoint Real Estate Partners) collaborated on a large real estate project in 2018, forming SE Multifamily Holdings, LLC to acquire substantial residential assets. HCRE, controlled by James Dondero, and Highland structured their membership interests in the LLC through an amended agreement after another investor joined. When Highland later entered Chapter 11 bankruptcy, HCRE, led by Dondero, filed a proof of claim asserting entitlement to distributions and seeking contract reformation regarding membership allocation. Both Dondero and another officer, Matt McGraner, admitted during litigation that their claim lacked merit, and evidence showed the claim was filed without investigation, likely to protect SE Multifamily’s assets from Highland’s creditors.The United States Bankruptcy Court for the Northern District of Texas oversaw the proceedings, including extensive discovery and a motion to disqualify HCRE’s counsel, which the court granted. As discovery continued, HCRE sought to withdraw its claim two days before critical depositions, but the bankruptcy court denied the motion, finding withdrawal would prejudice Highland. After a bench trial, the bankruptcy court ruled against HCRE, rejecting its contract reformation theory and disallowing its proof of claim. Subsequently, the court imposed sanctions on HCRE, finding bad faith in both the filing and litigation of the claim. The United States District Court for the Northern District of Texas affirmed the imposition of sanctions.On appeal, the United States Court of Appeals for the Fifth Circuit affirmed the lower courts’ decisions. The Fifth Circuit held that clear and convincing evidence supported the bankruptcy court’s finding that HCRE acted in bad faith by filing a baseless claim and litigating it in bad faith, including frivolously opposing the disqualification of counsel and seeking to withdraw the claim to avoid discovery while preserving it for future litigation. The court also held the sanctions were causally related to HCRE’s conduct and not an abuse of discretion. View "NexPoint v. Highland" on Justia Law

A business entity filed for Chapter 11 bankruptcy, and the priority of two loans was disputed: one held by the Small Business Administration (SBA Note), and another by Energy Debt Holdings LLC (EDH Note). During the bankruptcy proceedings, the bankruptcy court entered a Final Cash Collateral Order, recognizing EDH's secured claim and barring any challenges to the EDH Note’s priority after June 15, 2023. Later, at a confirmation hearing, the SBA’s counsel admitted that the SBA Note was subordinate to the EDH Note, and the parties agreed to a Confirmation Order granting EDH first priority. After the bankruptcy, Joshua Adler acquired the SBA Note and sought a declaratory judgment that it was senior to the EDH Note and requested payment from proceeds received by EDH.The United States Bankruptcy Court for the Southern District of Texas dismissed Adler’s suit, finding him judicially estopped from contesting the EDH Note’s priority due to prior admissions by SBA’s counsel. Adler appealed to the United States District Court for the Southern District of Texas, which affirmed the dismissal on alternate grounds. The district court concluded Adler’s claim was barred by both the Cash Collateral Order, due to the late filing, and the Confirmation Order, which established EDH’s priority.The United States Court of Appeals for the Fifth Circuit reviewed the case, applying clear error review for factual findings and de novo review for legal issues. The Fifth Circuit held that Adler’s suit was precluded by both the Cash Collateral Order and the Confirmation Order, as his challenge to EDH’s loan priority was filed after the deadline and contrary to the terms of the orders. The court affirmed the district court’s judgment, upholding the dismissal of Adler’s claims. Judicial estoppel was not decided as an independent ground. View "Adler v. Energy Debt Holdings" on Justia Law

With Purpose, Inc., a financial technology start-up, filed for Chapter 7 bankruptcy in February 2023. Prior to the bankruptcy, With Purpose, Inc. and the Ayers parties, who included a co-founder and early investors, were engaged in arbitration with claims and counterclaims involving both With Purpose, Inc. and Toby Neugebauer, another co-founder. When the bankruptcy was filed, the Ayers parties ceased pursuing claims against the debtor in line with the automatic stay, but continued to pursue claims—including seeking depositions and filing supplemental claims—against Neugebauer. Neugebauer failed to appear for several depositions and ultimately sought relief in bankruptcy court to enforce the automatic stay.The United States Bankruptcy Court for the Northern District of Texas found that the Ayers parties had willfully violated the automatic stay by pursuing certain claims and depositions against Neugebauer, specifically a breach-of-fiduciary-duty claim belonging to the bankruptcy estate. The bankruptcy court awarded Neugebauer actual damages, including attorneys’ fees. The United States District Court for the Northern District of Texas affirmed the bankruptcy court’s rulings, rejecting arguments that Neugebauer lacked prudential standing, that the violation was not willful, and that the damages award was excessive.The United States Court of Appeals for the Fifth Circuit reviewed the case. It held that Neugebauer, as a creditor, had standing to enforce the automatic stay under 11 U.S.C. § 362(k) and Fifth Circuit precedent. The court concluded that the Ayers parties willfully violated the automatic stay by pursuing estate property claims and depositions against Neugebauer. It further determined that the award of actual damages, including attorneys’ fees, was not clearly erroneous. The Fifth Circuit affirmed the decisions of the bankruptcy and district courts. View "Ayers v. Neugebauer" on Justia Law

South Coast Supply Company, an oil and gas distribution firm, experienced severe financial distress following a dramatic decline in oil prices in 2014. To mitigate the impact, Robert Remmert, the company’s Chief Operating Officer and Executive Vice President, personally loaned South Coast $800,000. Remmert was repaid a total of $320,628.04 through multiple checks as funds became available. Despite these efforts, the company ultimately filed for chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Texas.After the bankruptcy filing, South Coast initiated a preference claim against Remmert to recover the loan repayments, a claim later assigned to Briar Capital Working Fund Capital, L.L.C. following confirmation of the bankruptcy plan. The case was transferred to the United States District Court for the Southern District of Texas. The district court originally dismissed the case for lack of subject-matter jurisdiction, but the United States Court of Appeals for the Fifth Circuit reversed and remanded that decision. On remand, a jury trial was held. The jury was asked whether Briar Capital established that Remmert received more through the loan repayments than he would have received in a hypothetical chapter 7 liquidation. The jury found that Briar Capital did not meet its burden.The United States Court of Appeals for the Fifth Circuit reviewed the case after Briar Capital appealed, arguing that the jury’s verdict was unsupported by the evidence. However, because Briar Capital failed to file the necessary motions under Federal Rule of Civil Procedure 50(a) or 50(b), the appellate court held that it was without power to review the sufficiency of the evidence supporting the jury’s verdict. The court also found that, even under plain error review, some evidence supported the jury’s verdict. The judgment was affirmed. View "Briar Capital Working Fund v. Remmert" on Justia Law

Corelle, a company that sold Instapot multifunction cookers, entered into a 2016 master supply agreement (MSA) with Midea, the manufacturer. Under this arrangement, individual purchase orders (POs) were used for each transaction, detailing specific terms such as price and quantity. Each PO typically included Corelle’s own terms, including indemnity provisions. In 2023, Corelle filed for Chapter 11 bankruptcy and, as part of its reorganization plan, sold its appliances business and assigned the MSA to the buyer. However, Corelle sought to retain its indemnification rights for products purchased under completed POs made before the assignment.The United States Bankruptcy Court for the Southern District of Texas denied Midea’s objection to this arrangement, finding that the POs were severable contracts distinct from the MSA. This meant the indemnification rights related to completed POs remained with Corelle. Midea appealed, contending that the MSA and all related POs formed a single, indivisible contract that should have been assigned in its entirety. The United States District Court for the Southern District of Texas affirmed the bankruptcy court’s decision, emphasizing that the structure of the MSA and the parties’ course of dealing supported the divisibility of the POs from the MSA.On further appeal, the United States Court of Appeals for the Fifth Circuit reviewed the standards applied by the lower courts, the interpretation of the contracts, and the application of 11 U.S.C. § 365(f). The appellate court held that the bankruptcy court did not err in finding the POs were divisible from the MSA, that Corelle’s retention of indemnification rights did not violate bankruptcy law, and that the lower courts applied the correct standards of review. Accordingly, the Fifth Circuit affirmed the district court’s judgment. View "GuangDong Midea v. Unsecured Creditors" on Justia Law

Several landowners in South Texas leased mineral rights to a company that later filed for Chapter 11 bankruptcy protection. During the bankruptcy proceedings, the company, responding to a collapse in oil prices during the COVID-19 pandemic, temporarily halted production on wells within the leased premises for about 40 days before resuming operations. The bankruptcy court subsequently confirmed the company’s reorganization plan, which included a set deadline for filing administrative expense claims.The landowners, asserting that the company’s temporary cessation of production had automatically terminated their leases under the leases’ terms and Texas law, filed a motion in bankruptcy court seeking administrative expense priority for damages related to alleged post-termination trespass. They also sought to have a state court adjudicate whether the leases had terminated and whether trespass damages were owed, arguing that the bankruptcy court lacked jurisdiction or should abstain from deciding these underlying state-law issues. The bankruptcy court determined that it had core jurisdiction to decide the administrative expense claim, which included resolving the validity of the underlying lease-termination and trespass claims. The court found that the temporary cessation did not terminate the leases, denied the administrative expense claim, and declined to abstain. The United States District Court for the Southern District of Texas affirmed, rejecting arguments concerning jurisdiction, abstention, and the application of Texas law.On appeal, the United States Court of Appeals for the Fifth Circuit held that the bankruptcy court properly exercised jurisdiction over the administrative expense claim, which necessarily included resolving the underlying state-law lease-termination and trespass issues. The Fifth Circuit further held that, under the express terms of the leases and Texas law, the temporary cessation of production did not result in automatic termination, as production was resumed well within the contractual 120-day period. The Fifth Circuit affirmed the lower courts’ rulings. View "Storey Minerals v. EP Energy E&P" on Justia Law

Jet Oilfield Services was formed in 2018 by three individuals, with Brian Owen later acquiring a substantial membership interest. Jet’s governing agreement required Owen to obtain consent from at least one other member before entering transactions on Jet’s behalf. In 2022, Owen signed an agreement with Spin Capital, L.L.C., under which Jet would sell $4,500,000 of future receivables for $3,000,000. Spin attempted to confirm Owen’s authority by reviewing Jet’s bank statements and tax returns, noting Owen’s access to the company’s accounts and his designation as “Partnership Representative” and “General Partner or LLC member-manager,” though the tax return was unsigned by a member-manager. Jet subsequently filed for bankruptcy, and Spin filed a proof of claim based on this agreement and pursued related litigation.The United States Bankruptcy Court for the Western District of Texas held a trial on Jet’s counterclaims against Spin. The court found that Owen lacked both actual and apparent authority to bind Jet in the Spin Agreement and that Jet received no consideration for the contract. As a result, the bankruptcy court determined Spin’s claim was unenforceable. Spin appealed to the United States District Court for the Western District of Texas. Initially, the district court dismissed the appeal for an insufficient record but later reinstated it, allowing supplemental briefing. When Spin declined to submit further briefing, the district court dismissed the appeal with prejudice.On review, the United States Court of Appeals for the Fifth Circuit applied clear error review to the bankruptcy court’s factual findings and de novo review to its legal conclusions. The Fifth Circuit held that Owen did not have apparent authority to bind Jet, as Jet’s member-managers did not hold him out as an agent, and Spin’s reliance on Owen’s asserted authority was unreasonable. The court thus affirmed the judgment, holding that Spin’s claim against Jet was unenforceable. View "Spin Capital v. Jet Oilfield" on Justia Law

After Dallas Commodity Company obtained a $1.5 million state court judgment against Joseph F. Langston, Jr. and the Langston Family Limited Partnership, Langston filed for Chapter 7 bankruptcy. He claimed exemptions for two Individual Retirement Accounts (IRAs) worth over $500,000. The bankruptcy trustee repeatedly continued the creditors’ meeting (the “341 meeting”) to allow Langston to provide additional documents. The final 341 meeting occurred on May 26, 2021, after which the trustee failed to file a statement specifying the adjourned date and time as required by Bankruptcy Rule 2003(e). Despite this, the parties continued to communicate and negotiate, with Langston amending his bankruptcy schedules and entering into an agreed order with the trustees to abate related litigation until exemption objections were resolved.The United States Bankruptcy Court for the Northern District of Texas overruled Langston’s objection that Dallas Commodity’s challenge to his claimed exemptions was untimely, even though the objection was filed more than 30 days after the last 341 meeting. The bankruptcy court found that Langston had agreed to the continuance and had not objected to the process until after the objection was filed. The United States District Court for the Northern District of Texas affirmed, applying the Fifth Circuit’s prior case law and finding the objection timely under a case-by-case approach.The United States Court of Appeals for the Fifth Circuit reviewed the case and held that, although the trustee failed to comply with the procedural requirements of Bankruptcy Rule 2003(e), Langston had waived his right to object to the timeliness of Dallas Commodity’s exemption challenge by agreeing to the continuance and benefiting from the additional time. The Fifth Circuit affirmed the district court’s judgment, holding that the bankruptcy court properly overruled Langston’s timeliness objection on the basis of waiver. View "Langston v. Dallas Commodity Co." on Justia Law

In August 2019, a company filed for Chapter 11 bankruptcy, with its only assets being three properties occupied by its sole member and two affiliates. Arrowhead Capital Finance, Ltd. obtained judgments against these affiliates and initiated an adversary proceeding against the debtor, seeking to hold it liable for the affiliates’ obligations. During this process, the bankruptcy trustee filed a separate adversary proceeding to recover unpaid rent from one affiliate. A settlement was reached in which Arrowhead received assignment of claims against the affiliates in exchange for releasing its own claims. The bankruptcy court approved this settlement, retaining jurisdiction over the assigned claims. Arrowhead then intervened and obtained a final judgment against the affiliates, including Royal Street Bistro, LLC (RSB).After the bankruptcy court entered judgment, RSB and another affiliate filed a notice of appeal but failed to attach a copy of the judgment as required by the bankruptcy rules. The bankruptcy court clerk issued a deficiency notice, and the corrected notice was filed ten days after the deadline. Arrowhead moved to dismiss the appeal, arguing that the failure to timely attach the judgment deprived the district court of jurisdiction. The United States District Court for the Eastern District of Louisiana dismissed the appeal, holding that the defect was jurisdictional and, alternatively, that dismissal was warranted as a discretionary sanction for noncompliance.The United States Court of Appeals for the Fifth Circuit reviewed the case. It held that failure to attach the judgment to the notice of appeal is not a jurisdictional defect under the bankruptcy rules, and that the district court abused its discretion by dismissing the appeal without considering lesser sanctions or the absence of prejudice. The Fifth Circuit reversed the district court’s dismissal and remanded the case for further proceedings. View "Royal Street Bistro v. Arrowhead Capital" on Justia Law