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

This case arose from the Chapter 11 bankruptcies of Life Partners Holdings, LPI, and LPI Financial Services (collectively, the LP Entities). The LP Entities operated an investment business through which they defrauded investors and violated securities laws by using a multi-level marketing structure to sell their life insurance investments and contracting with individuals and entities they called "Licensees" to refer potential investors in exchange for sales commissions. The district court granted the Licensees' motions to dismiss all of the creditors' trust's claims and declined to allow repleading.Count 1 alleged actual fraudulent transfer under the Texas Business & Commerce Code, Count 2 alleged constructive fraudulent transfer under the Texas Business & Commerce Code, Count 3 alleged actual fraudulent transfer under 11 U.S.C. 548(a)(1)(A), Count 4 alleged constructive fraudulent transfer under 11 U.S.C. 548(a)(1)(B), Count 5 alleged preferences under 11 U.S.C. 547, Count 6 alleged recovery of avoided transfers under 11 U.S.C. 550, County 7 alleged breach of contract, Count 8 alleged equitable subordination of the Licensees' claims against the LP Entities' bankruptcy estates; Count 9 alleged disallowance of the Licensees' claims, Count 10 alleged negligent misrepresentation, Count 11 alleged breach of the Texas Securities Act, and Count 12 alleged breach of fiduciary duties.The Fifth Circuit affirmed as to Counts 5, 8, 11, and 12, but reversed the dismissal of Counts 1-4, 6, 9, and 10, holding that these claims were adequately pleaded. Accordingly, the court remanded for further proceedings. View "Life Partners Creditors' Trust v. Cowley" on Justia Law

This dispute between the bankruptcy court and Chapter 13 debtor's attorneys involved no-money-down business models where the debtor's attorney agrees to advance the costs of filing fees, credit counseling course fees, and credit report fees on behalf of the debtor. The bankruptcy court concluded that these fees were non-reimbursable under the district's no-look fee order and that counsel could never be reimbursed by statute.The Fifth Circuit held that debtor's counsel in this case was not entitled to additional reimbursement for advancing the costs of the filing fees, credit counseling fees, and credit report fees as administrative expenses necessary for preserving the estate under 11 U.S.C. 503(b)(1). However, 11 U.S.C. 503(b) and 330 provide bankruptcy courts with the discretion to compensate debtor's counsel for advancing the costs of filing fees, credit counseling fees, and credit report fees if they choose to do so. Therefore, the court held that the bankruptcy court did not err in interpreting its own standing order on no-look fee compensation, but that it did err in its conclusion that bankruptcy courts lack the discretion to ever award reimbursement of those fees. Accordingly, the court affirmed in part and vacated in part. View "McBride v. Riley" on Justia Law

42 U.S.C. 405(h)—which states that no claim arising under the Social Security Act can be brought under 28 U.S.C. 1331 and 1346—does not bar bankruptcy courts from exercising their jurisdiction under section 1334 to hear Social Security claims. The Fifth Circuit reversed the district court's holding otherwise and, joining the Ninth Circuit, held that the plain text of section 405(h)'s third sentence only bars actions under section 1331 and 1346, not section 1334. In this case, the bankruptcy court should examine debtor's claims and determine if they were channeled by section 405(h)'s second sentence into section 405(g). If they are, the district court must determine if jurisdiction under section 405(g) exists. If not, then the bankruptcy court has jurisdiction under section 1334 to hear debtor's claims. View "Benjamin v. United States" on Justia Law

The Fifth Circuit affirmed the district court's judgment affirming the bankruptcy court's decision to grant the Chapter 7 trustee's motion to approve auction and for authority to sell certain real property of the bankruptcy estate of VCR I. The court held that the trustee fully complied with the Agreed Order and Gluckstadt failed to address the court's precedent in In re Moore, the requirement under 11 U.S.C. 363(b) for the sale of a debtor's assets outside the ordinary course of business, or the trustee's fiduciary duty to maximize the assets of the bankruptcy estate. The court denied the trustee's motion to dismiss as moot. View "Gluckstadt Holdings, LLC v. VCR I, LLC" on Justia Law

LSI's bankruptcy trustee filed suit against several of LSI's corporate officers, directors, and investors for breaches of fiduciary duty. At issue was a contract LSI entered into with Jabil Inc., one of LSI's bankruptcy creditors. A jury found appellants liable and assessed compensatory and exemplary damages. The Fifth Circuit held that Appel, Bartlett, and DeJoria were entitled to judgment rendered in their favor: in DeJoria's case because of the lack of proof of a recoverable injury and the corresponding vacatur of exemplary damages; in Appel's case because there was no evidence of individual liability and the corresponding vacatur of exemplary damages; and in Bartlett's case because there was no evidence of individual liability. Accordingly, the court reversed and rendered judgment for these appellants. In regard to Cohen, the court vacated the damages award in part, affirmed in part, and remanded. View "Ebert v. DeJoria" on Justia Law

Appellants asserted claims for child support arrearages against debtor. Although debtor filed for bankruptcy, appellants claimed that they never received notice of debtor's bankruptcy case. Therefore, appellants argued that they were denied the opportunity to timely file proofs of claim.The Fifth Circuit affirmed the district court's decision affirming the bankruptcy court's finding that the Illinois Department of Healthcare and Family Services, from which appellants had sought child support enforcement services, had received timely notice and ultimately afforded their claims distribution status under 11 U.S.C. 726(a)(2). In this case, the Department was properly the creditor for the purposes of debtor's child support obligations and the Department's proofs of claim were untimely. View "Pate v. Tow" on Justia Law

The bankruptcy trustee invoked both equitable and statutory mootness to try and block an appeal of a bankruptcy court's approval of a sale of key estate assets, including a settlement necessary to facilitate the transaction. The Fifth Circuit held that equitable mootness was inappropriate, because the settlement and sale were not sufficiently complex.However, the court held that 11 U.S.C. 363(m) made the bankruptcy court's approval the final word on the subject when the objector did not obtain a stay of that ruling. In this case, the bankruptcy court noted that there was no way to sever the settlement from the sale and that they were mutually dependent. Accordingly, the court affirmed the district court's dismissal of the appeal. View "New Industries, Inc. v. Byman" on Justia Law

The Fifth Circuit affirmed the district court's dismissal of Jeffrey Baron's bankruptcy adversary proceeding under Rule 12(b)(6) against the trustee responsible for administering the bankruptcy estate of Ondova Limited Company. The court held that the trustee was entitled to absolute immunity for all actions taken pursuant to a court order, and entitled to qualified immunity for all other acts within the scope of his trustee duties. Furthermore, claims against the trustee's attorneys also failed because the attorneys were covered by both derivative trustee immunity and independent attorney immunity; the breach of fiduciary duty claim failed because Baron did not plausibly plead gross negligence; and Baron failed to raise the new causes of action contained within his proposed amended complaint in his briefs or argue that the district court erred in finding these claims unsuccessful. View "Baron v. Sherman" on Justia Law

The Fifth Circuit reversed the bankruptcy court's order requiring debtors, Ultra Petroleum, to pay certain creditors a contractual Make-Whole Amount and postpetition interest at a contractual default rate. In this case, debtors entered bankruptcy insolvent and now are solvent. At issue was whether the creditors were impaired by a plan that paid them everything allowed by the Bankruptcy Code.The court held that a creditor is not impaired by a reorganization plan simply because it incorporates the Bankruptcy Code's disallowance provisions. Because the bankruptcy court found otherwise, it did not address whether the Bankruptcy Code disallows the Make-Whole Amount or post-petition interest, and if not, how much debtors must pay the Class 4 Creditors. Therefore, the court reversed in part, vacated in part, and remanded for the bankruptcy court to answer these issues in the first instance. View "Ultra Petroleum Corp. v. Ad Hoc Committee of Unsecured Creditors of Ultra Resources, Inc." on Justia Law

Before Buccanneer filed for bankruptcy, the company fired its CEO, who then filed a claim for breach of contract in the bankruptcy. The CEO later dropped the claim and filed a tortious interference with contract claim in state court against Buccaneer's secured creditor, Meridian. After Meridian moved to federal court, the bankruptcy court sent the tortious interference claim back to state court.The Fifth Circuit held that the tortious interference claim alleging a direct injury to the CEO was not property of the estate, and thus there was no basis for bankruptcy court jurisdiction. Therefore, the court affirmed the judgment remanding the case back to state court. View "Meridian Capital CIS Fund v. Burton" on Justia Law