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

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

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

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

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

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

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

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

Fountain of praise, a church, leased space to Central Care Integrated Health Services. Shortly after the execution of the lease, the relationship soured when the parties disagreed on the frequency and amount of rent payments. Eventually, Fountain of Praise terminated the lease and successfully evicted Central Care from the premises.Subsequently, Central Care filed for Chapter 11 reorganization. Central Care then sued Fountain of Praise in state court, claiming breach of contract and unjust enrichment. Fountain of Praise then removed the case to bankruptcy court as an adversary proceeding. The bankruptcy court entered judgment in favor of Fountain of Praise, finding that any breach was excusable due to Central Care's failure to make timely rent payments and that Central Care lacked the requisite interest in the property for an unjust enrichment claim.Central Care appealed, and the district court judge assigned to the case reassigned the case to a magistrate judge who affirmed the bankruptcy court's judgment.On appeal, the Fifth Circuit vacated the magistrate judge's order, finding that the district court improperly authorized referral of the appeal from a bankruptcy court decision to a magistrate judge. Under 28 U.S.C. Section 158, appeals from a bankruptcy court must be heard either by the district court or a panel of bankruptcy court judges. View "South Central v. Oak Baptist" on Justia Law

A wrongful-death suit ended in default when a trucking company went bankrupt. That left two plaintiffs who both claimed to be the decedent’s common-law wife. The district court awarded damages to just one of them because Texas does not allow bigamy. The other putative wife maintains that the district court had to award damages to both plaintiffs.The Fifth Circuit affirmed the district court’s decision holding that a defaulting defendant is deemed to admit a plaintiff’s factual allegations, but the district court still may inquire whether those allegations demonstrate legal liability. In the putative wife’s amended complaint, she failed to make specific allegations regarding any of the elements of common-law marriage.The court reasoned that the statements she made were too “bare and conclusory” to be considered a well-pleaded factual allegation. After reviewing the putative wife’s complaint, the district court concluded that she and the decedent had agreed to be married, had cohabited, and had held themselves out as married. The court did not reject any of her factual allegations—it merely rejected the legal conclusion that she was married to the decedent. That rejection was proper in light of the other woman’s factual allegations.Moreover, where a plaintiff, but for the defendant’s default, would never have been able to show legal entitlement to a judgment, denial of that judgment is not itself a miscarriage of justice. There is nothing inequitable about allowing a district court to consider the facts alleged by all plaintiffs and award default judgment to only those whose claims are not precluded. View "Escalante v. Lidge" on Justia Law

Appellants, the Edwards Family Partnership (“EFP”) and Beher Holdings Trust (“BHT”), two companies owned by Edwards and collectively referred to as the “Edwards entities” and Appellee, the trustee who presently manages Dickson’s former company, Community Home Financial Services Corporation (“CHFS”), each raised various issues on appeal relating to the business relationship between EFP, BHT, and CHFS. The dispute revolved around two business transactions: (1) the initial home improvement loans from Edwards to CHFS and (2) a subsequent arrangement of seven mortgage portfolios of subprime loans (the “Mortgage Portfolios”) purchased as “joint ventures” between Edwards and CHFS.   The Fifth Circuit affirmed the district court’s and bankruptcy courts’ conclusion that the Appellant’s right to repayment for their funding of certain mortgage portfolios was barred by the statute of frauds.  Appellants argued the “statute of frauds does not apply to agreements already fully performed by one party; or to agreements capable of being fully performed within 15 months, even if performance is not expected.” The court reasoned that the bankruptcy court’s determination that CHFS could not repay the Edwards entities until it had collected on the underlying loans in the Portfolios,which would take more than five years, based on the terms of the loan agreement is plausible in light of the record. View "Edwards Family Partnership, et al v. Johnson" on Justia Law