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

The case revolves around James Dondero, co-founder and former CEO of Highland Capital Management, L.P., a global investment advisor that filed for bankruptcy in 2019. Highland filed an adversary proceeding against Dondero due to a dispute over the disposition of its assets in bankruptcy. The bankruptcy court issued a temporary restraining order (TRO) against Dondero, which he was later found to have violated, leading to a contempt order and compensatory damages awarded to Highland.The bankruptcy court's decision was affirmed by the district court. The court found that Dondero had violated the TRO by communicating with Highland's employees outside of the Shared Services Exception and interfering with Highland's trading activities. The court imposed a $450,000 compensatory monetary sanction to be paid to Highland, as well as a $100,000 sanction for each level of rehearing, appeal, or petition for certiorari unsuccessfully pursued. The district court affirmed all aspects of the bankruptcy court’s contempt order except for the $100,000 sanction for unsuccessful appeals, which Highland did not contest.The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. The court found that the bankruptcy court did not err in concluding that Dondero violated both Section 2(c) and Section 3 of the TRO. The court also found that the bankruptcy court did not abuse its discretion in awarding a $450,000 sanction. The court rejected Dondero's arguments that the TRO was vague and ambiguous, that there was not clear and convincing evidence of a TRO violation, and that the bankruptcy court erred in awarding the sanction. View "Dondero v. Highland Capital Management, L.P." on Justia Law

During the 2008 financial crisis, Highland Capital Management, L.P., an investment manager, faced numerous redemption requests from investors of the Highland Crusader Fund. The Fund was placed in wind-down, and a dispute arose over the distribution of assets. This led to the adoption of a Joint Plan of Distribution and the appointment of a Redeemer Committee to oversee the wind-down. The Committee accused Highland Capital of breaching its fiduciary duty by purchasing redemption claims of former investors. An arbitration panel ruled in favor of the Committee, ordering Highland Capital to pay approximately $3 million and either transfer or cancel the redemption claims.Before the Committee could obtain a judgment for the award, Highland Capital filed for Chapter 11 bankruptcy. CLO HoldCo, a creditor, filed a claim for approximately $11 million, asserting it had purchased interests in the redemption claims. However, after a settlement agreement between Highland Capital and the Committee led to the cancellation of the redemption claims, CLO HoldCo amended its claim to zero dollars.After the bankruptcy court confirmed Highland Capital's reorganization plan, CLO HoldCo filed a second amended proof of claim, asserting a new theory of recovery. It argued that the cancellation of the redemption claims resulted in a credit for Highland Capital, which it owed to CLO HoldCo. The bankruptcy court denied the motion to ratify the second amended proof of claim, a decision affirmed by the district court.The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. It held that post-confirmation amendments require a heightened showing of "compelling circumstances," which CLO HoldCo failed to provide. The court found that the bankruptcy court did not abuse its discretion in denying CLO HoldCo's motion to ratify the second amended proof of claim. View "CLO Holdco v. Kirschner" on Justia Law

The case involves the Roman Catholic Archdiocese of New Orleans ("Archdiocese") which sought Chapter 11 bankruptcy relief due to numerous lawsuits alleging sexual abuse by priests. The United States Trustee appointed an Official Committee of Unsecured Creditors ("Committee"), which included the appellants. The appellants' attorney, Richard Trahant, violated a protective order by disclosing confidential information related to abuse allegations against a priest. The bankruptcy court found Trahant's breach to be a disruption to the bankruptcy process and ordered the removal of Trahant's clients, the appellants, from the Committee.The appellants appealed their removal from the Committee to the district court, arguing that the district judge who was originally assigned their appeal should have recused himself earlier. The district court dismissed the appeal, concluding that the appellants lacked standing to appeal their removal from the Committee. The appellants then appealed to the United States Court of Appeals for the Fifth Circuit.The Fifth Circuit affirmed the district court's decision. It found that the district court did not err in declining to vacate the judgment, and the appellants lacked standing under Article III to prosecute this appeal. The court held that the appellants failed to demonstrate an injury to any legally protected interest. Their substantive rights as creditors in the bankruptcy case were not impaired by their removal from the Committee. The court also noted that the bankruptcy court's order did not amount to a personal sanction against the appellants, but was a consequence of the conduct of their attorney. View "Adams v. Roman Catholic Church" on Justia Law

The case involves a dispute arising from the financial fallout of Winter Storm Uri, which severely impacted Texas's electrical grid in 2021. The Electric Reliability Council of Texas (ERCOT), responsible for managing the grid, took measures including manipulating energy prices to incentivize production. This resulted in Entrust Energy, Inc., receiving an electricity bill from ERCOT of nearly $300 million, leading to Entrust's insolvency and subsequent bankruptcy filing. ERCOT filed a claim seeking payment of the invoice, which was challenged by Anna Phillips, the trustee of the Entrust Liquidating Trust. The trustee argued that ERCOT's price manipulation violated Texas law, that ERCOT was grossly negligent in its handling of the grid during the storm, and that ERCOT's transitioning of Entrust’s customers to another utility was an uncompensated taking in violation of the Fifth Amendment.The bankruptcy court declined to abstain from the case and denied ERCOT’s motion to dismiss all claims except for the takings claim. ERCOT appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the bankruptcy court should have abstained under the Burford doctrine, which allows federal courts to abstain from complex state law issues to avoid disrupting state policies.The Fifth Circuit found that the bankruptcy court erred in refusing to abstain under the Burford doctrine. The court reversed the bankruptcy court's denial of ERCOT’s motion to abstain and its denial of ERCOT’s motion to dismiss the trustee’s complaint. The court also vacated the bankruptcy court’s order dismissing the takings claim with prejudice. The court remanded the case with instructions to dismiss certain counts and stay others pending the resolution of related state proceedings. View "Electric Reliability Council of Texas v. Phillips" on Justia Law

GFS Industries, a Texas limited liability corporation, entered into an agreement with Avion Funding to receive $190,000 in exchange for $299,800 of GFS’s future receivables. GFS stated it had not filed, nor did it anticipate filing, any Chapter 11 bankruptcy petition. However, two weeks after signing the agreement, GFS petitioned for voluntary Chapter 11 bankruptcy in the Western District of Texas and elected to proceed under Subchapter V, a 2019 addition to the Bankruptcy Code designed to streamline the Chapter 11 reorganization process for certain small business debtors. Avion filed an adversary complaint in GFS’s bankruptcy, claiming GFS obtained Avion’s financing by misrepresenting whether it anticipated filing for bankruptcy. Avion sought a declaration that GFS’s debt to Avion was therefore nondischargeable.The bankruptcy court agreed with GFS, ruling that in the Subchapter V context, only individuals, not corporations, can be subject to § 523(a) dischargeability actions. The court followed the reasoning of four bankruptcy courts and declined to follow the Fourth Circuit’s recent decision in Cantwell-Cleary Co. v. Cleary Packaging, LLC (In re Cleary Packaging, LLC), which held that the Subchapter V discharge exceptions apply to both individual and corporate debtors. The bankruptcy court ruled GFS’s debt to Avion was dischargeable and dismissed Avion’s complaint. Avion timely appealed to the district court.The United States Court of Appeals for the Fifth Circuit disagreed with the bankruptcy court's interpretation of the interplay between § 523(a) and § 1192(2). The court found that § 1192 governs discharging debts of a “debtor,” which the Code defines as encompassing both individual and corporate debtors. The court also noted that other Code provisions explicitly limit discharges to “individual” debtors, whereas § 1192 provides dischargeability simply for “the debtor.” The court concluded that 11 U.S.C. § 1192(2) subjects both corporate and individual Subchapter V debtors to the categories of debt discharge exceptions listed in § 523(a). Therefore, the court reversed the judgment of the bankruptcy court and remanded for further proceedings. View "Avion Funding v. GFS Industries" on Justia Law

A group of individuals, including D&T Partners LLC and ACET Global LLC, alleged that Baymark Partners Management LLC and others attempted to steal the assets and trade secrets of their e-commerce company through shell entities, corrupt lending practices, and a fraudulent bankruptcy. The plaintiffs claimed that Baymark had purchased D&T's assets and then defaulted on its payment obligations. According to the plaintiffs, Baymark replaced the company's management, caused the company to default on its loan payments, and transferred the company's assets to another entity, Windspeed Trading LLC. The plaintiffs alleged that this scheme violated the Racketeer Influenced and Corrupt Organizations Act (RICO).The case was initially heard in the United States District Court for the Northern District of Texas. The district court dismissed all of the plaintiffs' claims with prejudice, finding that the plaintiffs were unable to plead a pattern of racketeering activity, a necessary element of a RICO claim.The case was then taken to the United States Court of Appeals for the Fifth Circuit. The appellate court agreed with the district court, holding that while the complaint alleges coordinated theft, it does not constitute a "pattern" of racketeering conduct sufficient to state a RICO claim. This is because the alleged victims were limited in number, and the scope and nature of the scheme was finite and focused on a singular objective. Therefore, the appellate court affirmed the district court’s judgment. View "D&T Partners v. Baymark Partners" on Justia Law

Highland Capital Management, L.P., a firm co-founded by James Dondero, filed for bankruptcy in 2019 due to litigation claims. As part of a settlement agreement, Dondero relinquished control of Highland to three independent directors, one of whom, James P. Seery, was appointed as Highland’s Chief Executive Officer, Chief Restructuring Officer, and Foreign Representative by the bankruptcy court. To protect Seery from vexatious litigation, the bankruptcy court issued an order that no entity could commence or pursue a claim against Seery relating to his role without the bankruptcy court's prior approval. Despite this, two entities founded by Dondero, the Charitable DAF Foundation and its affiliate CLO Holdco, filed a lawsuit against Highland in district court, alleging that Highland, through Seery, had withheld material information and engaged in self-dealing related to a settlement with one of its largest creditors, HarbourVest.The bankruptcy court held the appellants in civil contempt for violating its order and ordered them to pay $239,655 in compensatory damages. The district court affirmed the bankruptcy court's decision, concluding that the award was compensatory and therefore civil. The appellants appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the sanction was punitive and thus exceeded the scope of the bankruptcy court’s civil contempt powers.The United States Court of Appeals for the Fifth Circuit vacated the district court's decision and remanded the case. The appellate court found that the bankruptcy court had abused its discretion by imposing a punitive sanction that exceeded its civil contempt powers. The court held that the sanction was not compensatory because it was not based on the damages Highland suffered due to the appellants' decision to file the motion in the wrong court. The court instructed the bankruptcy court to limit any sanction award to the damages Highland suffered because of this error. View "Charitable DAF Fund v. Highland Captl Mgmt" on Justia Law

In this case, Fieldwood Energy LLC, and its affiliates, who were previously among the largest oil and gas exploration and production companies operating in the Gulf of Mexico, filed for Chapter 11 bankruptcy in 2020 due to declining oil prices, the COVID–19 pandemic, and billions of dollars in decommissioning obligations. In the ensuing reorganization plan, some companies, referred to as the "Sureties", who had issued surety bonds to the debtors, were stripped of their subrogation rights. The Sureties appealed this loss in district court, which held their appeal to be statutorily and equitably moot. The Sureties appealed again to the United States Court of Appeals for the Fifth Circuit, contending that a recent Supreme Court decision altered the landscape around statutory mootness and that the district court treated Section 363(m) as jurisdictional. However, the appellate court affirmed the district court’s decision, concluding that the Supreme Court’s recent decision did not change the application of Section 363(m) in this case, the district court did not treat the statute as jurisdictional, and the Sureties’ failure to obtain a stay was fatal to their challenge of the bankruptcy sale. The court also determined that the provisions stripping the Sureties of their subrogation rights were integral to the sale of the Debtors’ assets, making the challenge on appeal statutorily moot. View "Swiss Re Corporate Solutions America Insurance Co. v. Fieldwood Energy III, L.L.C." on Justia Law

In this case, Louisiana Pellets (LAP) built a wood processing facility but encountered financial issues that led to bankruptcy. LAP pursued Chapter 11 bankruptcy and a bankruptcy judge confirmed a Chapter 11 plan along with a liquidating trust agreement. Under the agreement, LAP transferred its remaining assets and causes of actions to the trust. More than a year after the creation of the trust, third parties assigned certain legal claims to the trust that the trustee, Craig Jalbert, pursued in state court. The claims involved misstatements made by Raymond James & Associates in its efforts to raise funds to construct LAP's facility. In response to Jalbert's filing, Raymond James asserted affirmative defenses, citing a pre-bankruptcy indemnity agreement it made with LAP.The United States Court of Appeals for the Fifth Circuit held that Raymond James could not maintain those defenses against the assigned claims. The court reasoned that the express language of the confirmation plan enjoined Raymond James's defensive maneuver. Also, the post-confirmation trust is not the appropriate entity against whom to invoke LAP's indemnity obligation. The court affirmed the bankruptcy court's ruling. View "Raymond James & Assoc v. Jalbert" on Justia Law

The United States Court of Appeals for the Fifth Circuit addressed an unprecedented issue in its circuit regarding the sale of preference claims arising under 11 U.S.C. § 547, in the context of Chapter 11 bankruptcy proceedings. The court was required to decide whether such claims could be sold and if the purchaser had the standing to pursue them.The case was initiated by South Coast Supply Company (South Coast), which filed for Chapter 11 bankruptcy after experiencing financial difficulties. During the proceedings, the company borrowed funds from its then-CFO, Robert Remmert. South Coast later filed a lawsuit against Remmert to avoid more than $300,000 of allegedly preferential transfers made before the bankruptcy proceedings. The company's sole secured lender, Briar Capital Working Fund Capital, L.L.C. (Briar Capital), eventually acquired South Coast's interest in this pending preference action against Remmert.Upon acquiring the lawsuit, Briar Capital was substituted as the assignee of South Coast. Remmert argued that Briar Capital lacked standing to prosecute the preference action. The district court agreed, holding that since a successful recovery would not benefit South Coast’s estate or its unsecured creditors, Briar Capital lacked standing to bring the preference claim against Remmert as a representative of the estate under 11 U.S.C. § 1123(b)(3)(B) of the Bankruptcy Code.On appeal, the Fifth Circuit reversed the district court's decision. The court held that preference actions can be sold pursuant to 11 U.S.C. § 363(b)(1) because they are property of the estate under 11 U.S.C. §§ 541(a)(1) and (7). Furthermore, even if Briar Capital does not qualify as a representative of the estate, it has standing to pursue the preference claim as it validly purchased the claim outright. Therefore, the court remanded the case for further proceedings. View "Briar Capital Working Fund v. Remmert" on Justia Law