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

In an action arising from the bankruptcy of CISH, the Fifth Circuit affirmed the bankruptcy court's sanction of appellants. Appellants had filed an adversary proceeding asserting causes of action that the bankruptcy court had placed in trust for CISH's creditors, but the bankruptcy court concluded that by attempting to seize control of trust property, appellants had knowingly violated its order confirming the liquidation plan.The court concluded that it lacked jurisdiction to review the dismissal order because appellants did not file a notice of appeal on the adversary docket and the notice of appeal did not comply with the requirements of the bankruptcy rules for appealing the adversary proceeding. In regard to the punitive sanctions, appellants failed to allege an injury-in-fact and the court lacked jurisdiction. Finally, because the bankruptcy court had jurisdiction over the Cleveland Imaging bankruptcy case, it had jurisdiction to enter the sanctions order, too; likewise, the court has jurisdiction to consider appellants' appeal; appellants have standing to appeal the sanctions order; the bankruptcy court did not err in finding that appellants violated its confirmation order by filing their adversary proceeding and contentions to the contrary lack merit; and clear and convincing evidence supported the bankruptcy court's finding of bad faith. View "Kreit v. Quinn" on Justia Law

The Fifth Circuit affirmed the district court's judgment affirming the bankruptcy court's orders in these consolidated cases arising out of the bankruptcy of PFO and a dispute over the validity and scope of the bankruptcy court's orders prohibiting one non-debtor, VSP, from asserting claims against two non-debtors, Hillair Capital Investments L.P. and Hillair Capital Management L.L.C.The court found that the bankruptcy court had jurisdiction to enter the Lift Stay Order and it retained jurisdiction to interpret and enforce its orders, as it did in the 2019 orders. The court concluded that the bankruptcy court would not have abused its discretion in refusing to abstain under 28 U.S.C. 1334(c)(2) as there was no timely motion for abstention. The court also concluded that the district court correctly interpreted the Lift Stay Order as prohibiting VSP's assertion of claims against Hillair in the California Action. Finally, the court affirmed the award of attorneys' fees and the earlier bankruptcy court's orders. View "VSP Labs v. Hillair Capital Investments, LP" on Justia Law

The Fifth Circuit vacated the award of attorney's fees in this bankruptcy action and remanded for further proceedings. The court held that a court may compensate an attorney under 11 U.S.C. 330(a) only for services requiring legal expertise that a trustee would not generally be expected to perform without an attorney's assistance. In this case, the bankruptcy court failed to apply the proper legal standard in two respects. First, the bankruptcy court appeared to permit Chaffe to recover for the performance of ordinary trustee duties because of the successful result of the bankruptcy proceeding. Second, the bankruptcy court ignored that the burden rests on the attorney requesting compensation under section 330(a) to justify the services rendered. View "Sylvester v. Chaffe McCall, LLP" on Justia Law

Dean filed a Chapter 7 voluntary petition. The trustee for the estate did not have sufficient unencumbered funds to retain counsel to pursue claims for the estate. Reticulum, a creditor, agreed to fund the trustee’s litigation in exchange for a share of any of litigation proceeds. The bankruptcy court approved the agreement. The district court affirmed. Dean appealed, contending that the agreement undermined the statutory ranking system for distribution of the estate’s property by allowing Reticulum to move ahead of other creditors.The Fifth Circuit dismissed the appeal for lack of standing. Bankruptcy standing may be addressed even when it was not raised below. The court employed the “person aggrieved” test, a “more exacting standard than traditional constitutional standing.” The appellant must show that he is “directly, adversely, and financially impacted by” the exact order being appealed as opposed to the proceedings more generally. In a Chapter 7 bankruptcy, the debtor-out-of-possession typically has no concrete interest in how the bankruptcy court divides up the estate. A debtor may retain bankruptcy standing by showing that defeat of the order on appeal would affect his bankruptcy discharge. The approval of the litigation funding agreement did not affect whether Dean’s debts will be discharged. View "Dean v. Seidel" on Justia Law

BVS, a company owned by Palasota, and Palasota separately filed voluntary Chapter 11 bankruptcy petitions. An amended 2015 “joint” reorganization plan described the amounts BVS owed a secured creditor, Prosperity, and provided that Prosperity would have an Allowed Secured Claim of $1,812,472.43, to be paid based upon a 120-month amortization with interest at 5% per annum. Commencing on November 8, 2015, BVS was to make 59 equal payments of $19,224.72; the 60th payment would be of all outstanding principal and interest. Palasota, individually and on behalf of BVS, signed the 2015 Plan, which was confirmed. For 38 consecutive months, BVS made payments, which Prosperity applied to BVS’s principal and interest obligations.BVS then stopped making its monthly payments and, in 2019, again filed for bankruptcy. In the second bankruptcy, Prosperity filed a proof of claim for $1,333,695.84. After a hearing, the bankruptcy court allowed Prosperity’s claim. The district court and Fifth Circuit affirmed. BVS’s claim objection is barred by res judicata because Prosperity’s claim in the second bankruptcy—as it relates to whether Prosperity’s claim in the 2015 Plan was correct—arises out of the same transaction that was the subject of the 2015 Plan and BVS could have made this argument in the first bankruptcy but did not. View "BVS Construction, Inc. v. Prosperity Bank" on Justia Law

After a grocery went bankrupt, a creditor filed a proof of claim for about $325,000, the balance on a loan it had made to the grocery. In the business's Chapter 11 plan, the bankruptcy court awarded the creditor the grocery store and the land where it was located. After assessing the value of the property at $225,000, the bankruptcy plan reduced the outstanding balance on the loan to $100,000, which the owners of the grocery remained liable for. The owners then filed for bankruptcy and the creditor again filed a proof of claim for the entire debt. The creditor argued that the $225,000 credit against the guaranteed loans should not apply in the owners' personal bankruptcy, because the store had not yet been transferred and the vacant property had declined in value.The Fifth Circuit concluded that the terms of the first bankruptcy are binding in the second bankruptcy. The court explained that, under section 1141(a) of the Bankruptcy Code, the provisions of a confirmed bankruptcy plan bind both the debtor and its creditors. Therefore, the creditor is bound by the provision of the first bankruptcy plan awarding it the grocery store in exchange for a fixed-value credit against the guaranteed debt. Accordingly, the court affirmed the district court's judgment upholding the bankruptcy court's orders sustaining the owners' objection and confirming their individual bankruptcy plan. View "New Falls Corp. v. LaHaye" on Justia Law

The Fifth Circuit held that 11 U.S.C. 363(m) forecloses the creditor's appeal of last-minute modifications to the terms of a bankruptcy sale because it failed to seek the required stay of the Sale Order. The court explained that Am. Grain Ass'n, 630 F.2d at 248, and In re Sneed Shipbuilding, Inc., 916 F.3d 405, 408 (5th Cir. 2019), are controlling in this case and thus the Committee's contentions to the contrary are unavailing. Accordingly, the court affirmed the district court's ruling that the Committee's appeal was statutorily moot under section 363(m). View "The Official Committee of Unsecured Creditors of Walker County Hospital Corp. v. Walker County Hospital District" on Justia Law

After the bankruptcy court awarded fees to the bankruptcy debtor's counsel for work performed prior to the appointment of a trustee, creditors appealed the fee award to the district court. The Fifth Circuit reversed the district court's vacatur of the fee award, concluding that the district court improperly assessed the benefit of counsel's services to the estate from hindsight, rather than assessing the reasonableness and likely benefit from the time the services were rendered. Accordingly, the court remanded for the district court to reinstate the bankruptcy court's fee award; denied the motion to dismiss the trustee from the appeal for lack of standing; denied the motion to dismiss as moot; and denied as moot the alternative motion to vacate the district court's judgment. View "Edwards Family Partnership, LP v. Johnson" on Justia Law

Texas and Oklahoma oil and gas producers challenge the bankruptcy court's grant in part and denial in part of Deutsche Bank's motion for partial summary judgment in a lien priority dispute. The competing security interests arose out of proceeds from the sale of oil that debtor purchased from appellants before declaring bankruptcy.The Fifth Circuit affirmed the bankruptcy court's order, holding that the bankruptcy court did not err in holding that the warranty of title did not waive the Producers' rights to assert a lien under either Texas UCC 9.343 or the Oklahoma Lien Act; because the warranties did not waive Producers' claims to proceeds in the hands of debtor, the Bank's reliance is misplaced on cases where producers attempted to collect from purchasers downstream of the first purchasers; and following Fishback Nursery, Inc. v. PNC Bank, N.A., 920 F.3d 932, 939-40 (5th Cir. 2019), Delaware law governs the competing priorities under either Texas choice of law or the federal independent judgment test. The court affirmed the bankruptcy court's conclusion that the Bank's interests in the disputed collateral prime any interests held by the Texas Producers. Furthermore, the bankruptcy court correctly dismissed the Producers' affirmative defenses of estoppel, unclean hands, and waiver. View "Deutsche Bank Trust Co. v. U.S. Energy Development Corp." on Justia Law

After debtor filed for Chapter 13 bankruptcy, his bankruptcy plan proposed retention of his GMC Sierra, "cram down" of the loan for the purchase of the Sierra, and surrender of the Toyota Camry as collateral for the purchase of the Camry. The bankruptcy court approved the plan, but the district court reversed.The Fifth Circuit affirmed the district court's judgment. The court explained that the text of 11 U.S.C. 1325(a)(5) does allow debtors to select a different option "with respect to each allowed secured claim." However, allowing a debtor to select a different section 1325(a)(5) option for each claim is different from allowing a debtor to select different options for different collateral securing the same claim. While section 1325(a)(5) allows the former, it does not allow the latter: its use of the conjunction "or" between the options provided in subsection (A), (B), and (C) makes it clear that debtors may choose only one of those three options for each claim. The court stated that a plan violates that requirement when it selects different options for different collateral securing the same claim. Furthermore, Williams v. Tower Loan of Mississippi, 168 F.3d 845 (5th Cir. 1999), which held that debtors must select the same section 1325(a)(5) option for all of the collateral securing a single claim, supports the court's decision. In this case, for the plan to be approvable under section 1325(a)(5), the plan must select the same section 1325(a)(5) option for both items of collateral securing the Camry Loan—the Camry and the Sierra. View "Evolve Federal Credit Union v. Barragan-Flores" on Justia Law