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

Baker Hughes Oilfield Operations, Inc., an undersecured creditor in this bankruptcy proceeding appeals the refusal to allow it to promote its unsecured claim to secured status claim under Bankruptcy Code section 1111(b)(2). Baker Hughes and other creditors filed a petition for involuntary Chapter 7 bankruptcy against R. L. Adkins, Corp. in 2011 and the case was converted into a Chapter 11 proceeding shortly thereafter. Scott Oils, Inc. proposed to purchase the mineral properties of the debtor and filed its Second Amended Plan of Organization. The Plan proposed the sale of substantial mineral interests, some 90 mineral leases and several wells, to Scott Oils “pursuant to Bankruptcy Code Section 363,” in exchange for over 3.4 million dollars. The Plan recognized that Baker Hughes had a lien on four of these mineral leases and one well. The full claim of Baker Hughes in the well was shown to be $321,506.28 but only a secured $38,753.22 interest. Four other creditors were shown to have secured interests in the same well. Baker Hughes filed for an election pursuant to section 1111(b) to have its claim treated as secured to the full extent. Scott Oils replied by pointing to the terms of the statute that denied the election where “such property is sold under [section] 363 of this title or is to be sold under the Plan.” Several days of hearing on confirmation of the Plan were held in April of 2013 and the Plan was confirmed in May. Baker Hughes did not appear at the hearing on confirmation and did not object or appeal any act or decision of the bankruptcy court prior to the confirmation. Nor was the confirmation appealed. Following the confirmation, Baker Hughes continued to pursue its Section 1111 claim and argued that either it had the right to make a credit bid at the sale of the collateral or be granted election sought under 1111(b). Finding no reversible error in the bankruptcy or district courts' rejection of Baker Hughes' claim, the Fifth Circuit affirmed. View "Baker Hughes Oilfield Oprt Inc v. Torres" on Justia Law

After their bankruptcy was converted from a chapter 11 reorganization to a chapter 7 liquidation, appellants Marco and Roxanne Cantu sued their bankruptcy attorney Ellen Stone relating to her representation prior to the conversion of their case. The chapter 7 trustee, Michael Schmidt, intervened in the action against Stone contending that the claims belonged to the estate. The parties eventually settled the malpractice case and the funds were deposited into the court registry pending a determination whether the settlement proceeds belonged to the Cantus individually or to the bankruptcy estate. The bankruptcy court held that the proceeds belonged to the estate, and the district court affirmed. The Fifth Circuit agreed with the bankruptcy court's analysis that the estate suffered injuries from Stone’s representation that would have allowed it to assert claims against her prior to conversion, and affirmed. View "Cantu v. Schmidt" on Justia Law

Appellant and her law firm appealed the bankruptcy court's contempt order holding them in civil contempt for failing to pay sanctions imposed for prior misconduct. The misconduct stemmed from appellant's misconduct in her legal representation of debtor during bankruptcy proceedings. The court concluded that the bankruptcy court retained jurisdiction to enforce the sanctions orders through any appropriate means, including a civil contempt order; the court rejected appellant's contention that she was "threatened" with imprisonment and concluded that the order does not violate the prohibition on imprisonment for a debt; and the order was not an abuse of the bankruptcy court's discretion because appellant is not protected by her alleged membership in her LLC where she was found in civil contempt for failure to pay sanctions that she owed because of her own misconduct in prior bankruptcy proceedings. Accordingly, the court affirmed the order. View "Garrett v. Coventry II DDR" on Justia Law

The Trustee of the Vallecito bankruptcy estate appealed the district court's affirmance of the bankruptcy court's judgment in favor of various owners of overriding royalty interests (appellees) to a lease that the trustee seeks to sell on behalf of the bankruptcy estate. The court concluded that the bankruptcy court did not abuse its discretion in excluding a letter submitted by an attorney in the Navajo Nation Department of Justice, stating that any "purported overriding royalty interest is invalid under the applicable provisions of the Navajo Nation Code and is completely void." The court agreed with the district court that the letter was untrustworthy, in large part because it was drafted by the trustee's counsel and was prepared after the trustee's counsel provided the Navajo Nation official with only one side of the story; the court concluded that the bankruptcy court properly held that the trustee could not raise the lack of approval by the Navajo Nation to void the contracts between Appellees and Briggs-Cockerham; and the court found no error in the district court's disposition of the trustee's additional arguments in a lis pendens filing. Accordingly, the court affirmed the judgment. View "Morton v. Yonkers, et al." on Justia Law

Holt and TAUG, subcontractors of the bankrupt Seiber, appealed the district court's affirmance of a prior bankruptcy court order, holding that the funds of an interpleader action, filed by EnCana, were property of the bankruptcy estate of Seiber, not EnCana, because the interpleader action extinguished the earlier construction liens of Holt and TAUG. The court upheld the validity of TAUG's chapter 56 lien where TAUG had a valid mineral lien against EnCana's property at the time EnCana was discharged from further liability to Seiber; as to Holt, the district court did not err in holding EnCana's interpleader and its deposited funds automatically satisfied its liability to Seiber, thus transferring legal possession of the funds to Seiber and the bankruptcy estate; the district court and bankruptcy courts erred in failing to draw the distinction between the act of depositing funds into the district court registry and the judicial act of discharging the depositor of any further liability; simply depositing interpleader funds does not automatically mean that the funds have been legally accepted, ownership thereof transferred, and the interpleader relieved of further duty to the court or further obligation to the parties of the dispute; the court need not address whether chapter 56 allows the liens to extend to the funds because the bankruptcy court entered an order, separate from this appeal, ruling on the interpleader and discharging EnCana; and, therefore, the court vacated and remanded for further proceedings. View "Holt Texas, Ltd., et al. v. Zayler" on Justia Law

Vantage appealed three orders from the district court and two orders from the bankruptcy court entered during the course of the Chapter 11 proceedings of twenty-one shipping companies. The orders' combined effect was to place certain shares of Vantage stock in custodia legis with the clerk of the court. The court concluded that the appeals are not moot, that the Vantage Shares are not "property of the estate," and that the Vantage Litigation is not "related to" the bankruptcy proceedings. In this case, the district court and the bankruptcy court had no subject-matter jurisdiction to enter the orders and, therefore, the court vacated and remanded for further proceedings. The court denied debtors' Motion to Dismiss Appeals.View "Vantage Drilling Co. v. TMT Procurement Corp., et al." on Justia Law

The trustee sought to avoid the pre-bankruptcy transfer of $18,529.64 to creditor as a preferential transfer made within 90 days prior to debtor's filing for bankruptcy. The bankruptcy court and the district court concluded that the transfer was indeed a preferential transfer avoidable by the trustee. Because the transfer of the bank account occurred less than 90 days before debtor filed for bankruptcy and because the transfer met all the other requirements of a preferential trade, the court agreed that the transfer was avoidable by the trustee. Accordingly, the court affirmed the judgment of the district court.View "Flooring Sys., Inc. v. Chow" on Justia Law

Drillers filed a mineral lien on Debtor's well after Drillers performed work on the well and were never paid. The bankruptcy court dismissed Drillers' constructive trust and equitable lien claims and granted summary judgment to Debtors on Drillers' mineral contractor's and subcontractor's lien claims. The district court affirmed. The court affirmed the dismissal of Drillers' constructive trust and equitable lien claims. However, the court reversed and remanded the grant of summary judgment on Drillers' mineral subcontractors' lien claims because Drillers submitted sufficient evidence to survive summary judgment. The court held that it is possible under Texas law for an owner to also be a contractor, and for a laborer to secure liens against both the contracting and non-contracting owners. Viewed in the light most favorable to Drillers, the facts demonstrate that Drillers were subcontractors with regard to Debtors.View "Endeavor Energy Resources, L.P, et al. v. Heritage Consolidated, L.L.C., et al." on Justia Law

McClendon was the president and sole shareholder of NIA Insurance, for which Springfield served as Chief Financial Officer. In 2007, McClendon accused Springfield of theft and fired him. NIA and McClendon sued Springfield in Texas state court, claiming theft and conversion. Springfield answered and counterclaimed, alleging defamation. The suit court jury determined that Springfield was entitled to $341,000 in actual damages for defamation. Later, McClendon filed a voluntary petition for Chapter 11 bankruptcy. Springfield filed a successful adversary proceeding, seeking to have the debt arising from the jury award declared non-dischargeable under 11 U.S.C. 523(a)(6). The bankruptcy court determined that McClendon inflicted a willful and malicious injury upon Springfield. The district court and Fifth Circuit affirmed, rejecting challenges to the sufficiency of the evidence and that the bankruptcy court impermissibly shifted the burden of proof to McClendon.View "McClendon v. Springfield" on Justia Law

Debtor Lisa Galaz filed an adversary proceeding in bankruptcy court against her ex-husband, appellant Raul Galaz, for fraudulently transferring the assets of Artist Rights Foundation, LLC ("ARF") to a Texas limited liability company managed by Raul's father. Raul, a former California attorney, founded ARF in 1998 with Julian, a music producer, in order to collect royalties for the music of the Ohio Players. Raul and Julian secured all rights to the Ohio Players' music catalogue and exploited those rights, but from 1998 until 2005 the rights did not generate any revenue. In 2002, Lisa and Raul divorced and executed a divorce decree under which Raul assigned half of his 50% interest in ARF to Lisa. Because Raul transferred half of his interest to Lisa without Julian's consent, in violation of ARF's written operating agreement, Lisa received an economic interest in ARF with no management or voting rights. In 2005, without obtaining prior consent from either Lisa or Julian, Raul assigned all of ARF's rights to the entity Segundo Suenos. Soon thereafter, the royalties for the Ohio Players' music began to generate a substantial amount of revenue. From the time of ARF's transfer in June 2005 until trial in February 2010, Segundo Suenos's gross revenue from the Ohio Players' royalties totaled nearly one million dollars. Neither Julian nor Lisa received any share of the profits despite their interests in ARF. In 2007, Lisa filed for Chapter 13 bankruptcy. In April 2008 she brought an adversary proceeding against Raul and Segundo Suenos, asserting claims under the Bankruptcy Code and the Texas Uniform Fraudulent Transfer Act ("TUFTA"), and asserted that Raul, as a managing member of ARF, breached his fiduciary duties to Lisa when he transferred ARF's assets to Segundo Suenos. Defendants filed a third-party complaint against Julian, who in turn asserted seven counterclaims against Defendants, including breach of fiduciary duty and fraudulent conversion. After a bench trial, the bankruptcy court found that the transfer of assets from ARF to Segundo Suenos was invalid, that it constituted a fraudulent transfer under TUFTA, that Raul owed fiduciary duties to Julian and had breached those duties, and that Raul owed no fiduciary duties to Lisa. The court entered judgment for Lisa and Julian, awarding both actual and exemplary damages. Raul and Segundo Suenos unsuccessfully appealed the judgment to the district court. The district court vacated and remanded the damages awards, however, for further consideration of Segundo Suenos's alleged expenses and for redetermination of both the actual and exemplary damages. Appellants Raul and Segundo Suenos appealed the district court's decisions. "Because rapidly evolving case law has limited bankruptcy courts' jurisdiction," the Fifth Circuit vacated the district court's order and remanded the case with separate instructions for each judgment creditor. View "Galaz, et al v. Galaz, et al" on Justia Law