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

IFS and 17 affiliated organizations (collectively, Interamericas) were debtors in a series of Chapter 7 cases. This appeal arose from eight collective adversary proceedings, which a trustee of IFS brought against appellants for avoidance of fraudulent transfers under Chapter 5 of the Bankruptcy Code and Chapter 24 of the Texas Business and Commerce Code. Appellants appealed the district court's affirmance of the bankruptcy court judgment of over $3 million in favor of the trustee. The court held that control could be sufficient to show ownership of what was ultimately a fact-based inquiry that would vary according to the peculiar circumstances of each case. The court also held that the lower courts' findings of ownership were not clearly erroneous and, moreover, comported with precedent and the court's holding today where IFS exercised control over the accounts at issue such that it had de facto ownership over the accounts, as well as the funds contained. The court further held that the record supported the lower courts' findings of fraudulent transfer. Specifically, IFS faced pending lawsuits and mounting debts just as it liquidated nearly all Interamericas' assets and evidence that IFS operated as a fraudulent enterprise at the time of transfer supported this finding of fraudulent intent. Accordingly, the judgment was affirmed.

Plaintiffs-Appellants James and Sandra Lindquist sued the City of Pasadena alleging the City violated their state and federal constitutional rights by exercising "unbridled discretion" in connection with the denial of a zoning waiver. Plaintiffs operated a used-car dealership in Pasadena. In 2003, the Pasadena City Council enacted an ordinance adopting licensing standards for used-car dealers criminalizing the sale of used cars without a license and imposing a number of requirements that dealers must meet as a condition of receiving a license. Two of those requirements were the subject of this appeal: (1) new license locations are required to be a minimum of one-thousand feet from any existing license; and (2) no new licenses could be issued within 150 feet of a residential area. After the ordinance was passed, Plaintiffs considered purchasing two lots to expand their existing dealership. City officials told them that neither lot qualified for a license, but Plaintiffs purchased the lots anyway. Plaintiffs later learned that their competitors purchased a nearby lot, had applied for a license, and were denied for different reasons than those given to Plaintiffs. On appeal, the Fifth Circuit reversed the district court's ruling that Plaintiffs' equal protection claim failed to state a claim for relief. On remand, the district court granted summary judgment to the City after determining Plaintiffs failed to create a genuine issue of fact with respect to their equal protection claim. Upon review, the Fifth Circuit concluded that Plaintiffs could not show that the City Council acted irrationally when it denied their license appeal. Furthermore, the Court found that Plaintiffs failed to preserve their unbridled discretion claim for further review. As such, the Court affirmed the district court's grant of summary judgment in favor of the City.

This appeal was from the grant of summary judgment in a diversity case in which plaintiff was a limited partner in a partnership that received a loan from defendant. The dispute stemmed from a limited guaranty agreement between the Bank and plaintiffs, who became a guarantor of the loan received by the partnership. At issue was whether the guaranty agreement only required payment from the guarantor once the balance of the outstanding loan was $500,000 or less. The district court ruled that the payment was immediately due regardless of whether the balance of the loan had been reduced to $500,000. Because the court found the language of the guaranty agreement ambiguous, the court held that the district court erred by accepting the Bank's interpretation and granting summary judgment. Therefore, the court vacated the summary judgment and remanded to the district court. Further, the court affirmed the district court's denial of the motion for leave to file a supplemental claim. Finally, the court vacated the order awarding attorney's fees.

This case stemmed from petitioners', the sole shareholders of two Subchapter S corporations, India Music and HRI, engagement in the business of importing and selling music, making those entities related parties under Internal Revenue Code, 26 U.S.C. 267. At issue was whether the Commissioner effected a change in a taxpayer's method of accounting for the purposes of section 481 when he required that taxpayer to postpone a deduction from gross income pursuant to section 267(a)(2). The court held that because it concluded that a section 267(a)(2) disallowance constituted a change in a taxpayer's method of accounting under section 481, the court affirmed the judgment of the Tax Court.

Defendant Peter Bernegger and his co-defendant were charged in a six-count indictment with various counts of mail fraud, wire fraud, bank fraud, and conspiracy for inducing investors to invest money in two start-up companies based on several misrepresentations. Bernegger was convicted of mail and bank fraud and was sentenced to seventy months in prison and ordered to pay restitution of approximately $2 million. The Fifth Circuit affirmed as modified, holding (1) the district court did not err in refusing to sever the bank fraud count from the mail and wire fraud counts; (2) the district court did not violate the Sixth Amendment or abuse its discretion in denying Bernegger the opportunity to cross-examine a witness about an alleged discrepancy in Bernegger's testimony; (3) the district court did not plainly err by not declaring a mistrial sua sponte based on the format of the indictment; (4) there was sufficient evidence to support the jury's verdict finding Berneggar guilty of mail fraud; and (5) because the district court clearly erred in calculating the total loss amount, the restitution amount was incorrect and was therefore modified to reflect the correct total loss amount of $1,725,000.

This appeal required the court to determine what effect, if any, a retiree benefits-related provision included in an asset purchase agreement had on the acquiring company's retiree benefits plans governed under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1000 et seq. The court held that the provision constituted a valid plan amendment. Moreover, the court held that the provision was assumed, not rejected, in bankruptcy. Accordingly, the court reversed and remanded.

Plaintiff partnership was formed for the purpose of facilitating the acquisition of a portfolio of Chinese nonperforming loans (NPLs). The IRS determined that plaintiff was a sham partnership that need not be respected for tax purposes and that plaintiff's allocation of the $200 million loss to the deducting partner should be disallowed. At issue on appeal are the income-tax consequences of three interrelated transactions entered into by plaintiff and its three members. The court held that the district court correctly held that, while the acquisition of an interest in a portfolio of Chinese NPLs had economic substance, the plaintiff partnership was a sham that must be disregarded for federal income-tax purposes. As a consequence, that acquisition must be recharacterized as a direct sale. The court also held that the district court was correct to disallow all accuracy-related penalties on the ground that plaintiff had reasonable cause for, and exhibited good faith in, reporting the positions it took on its 2002 partnership return. Accordingly, the judgment was affirmed.

This litigation arose out of a contract between the parties in which PDNED agreed to transfer its rights to LHC to purchase shopping mall property from a third party. LHC alleged that, based on representations made by PDNED, LHC expected to lease the property to Lowe's Home Improvement. PDNED subsequently appealed a judgment entered on a jury verdict in favor of LHC. As a preliminary matter, the court held that it need not resolve the choice-of-law question where the parties agreed that, with a few exceptions, no material differences existed between New Hampshire and Texas law with regard to the case and the court's conclusions would be the same under either state's law. The court held that the purchase and sale agreement (P&S Agreement) precluded LHC's promissory estoppel claim because the agreement itself controlled the extent of PDNED's binding promises with regard to the purchase and sale of the property. The court also held that the district court did not err when it denied PDNED's motion to dismiss LHC's negligent and fraudulent misrepresentations claims as a matter of law where the evidence presented at trial was sufficient to support finding PDNED liable for negligent and fraudulent misrepresentations. The court also held that the jury's out-of-pocket award was the appropriate measure to compensate LHC for reliance costs but that lost profits were not an appropriate measure of damages for the fraudulent misrepresentations in this case. The court finally held that PDNED could not be considered the prevailing party in this litigation for purposes of the P&S Agreement's attorneys' fees provision. Accordingly, the court vacated the district court's judgment against PDNED on LHC's promissory estoppel claim and the jury's award in lost profits. The court affirmed the district court's judgment and the jury's award of out-of-pocket damages and the denial of PDNED's motion for attorney's fees.

The bankruptcy court issued an order that authorized the debtor to reimburse qualified bidders for expenses incurred in connection with the sale of a substantial asset of the debtor's estate. Debtor and debtor's parent companies subsequently appealed the bankruptcy court's reimbursement order. As a preliminary matter, the court held that it had jurisdiction over the appeal where, in settling this "discrete dispute," the reimbursement order was sufficiently separable from the rest of the bankruptcy proceeding to be appealable as a "final" order under 28 U.S.C. 158(a) and (d). The court also held that, based on the record, the bankruptcy court did not err in issuing the reimbursement order under the business judgment standard in section 363(b) of the Bankruptcy Code. Accordingly, the judgment of the district court was affirmed.

This appeal arose from an earlier trial relating to the Enron scandal. The government alleged that Enron loaned out the stake in the barges that it owned off the Nigerian coast to Merill Lynch, risk-free and with a guaranteed return, but made it seem like a sale so that it could book a pretend profit. Defendant, a managing director at Merrill Lynch and the head of its Strategic Asset and Lease Finance group at the time of the transaction, challenged his convictions related to the sale on the grounds that the government violated his right to due process by withholding materially favorable evidence that it possessed pre-trial. The court affirmed and held that the district court did not clearly err in holding that the evidence at issue was not material.