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

This case stemmed from the Chapter 11 bankruptcy filing of a family-owned oil and gas drilling business. The Nancy Sue Davis Trust ("Trust") filed a motion to revoke a confirmation order from the Chapter 11 bankruptcy filing for fraud and alleged that it had recently become aware that former advisers of the family and various representatives of the purchasing entities had engaged in fraud that enabled them to buy out the family's interests far below market value. At issue was whether the plan of reorganization and confirmation order barred the assertion of fraud claims against defendants. The court held that all family members, including the Trust, were continuously represented by sophisticated counsel and could have elected zealously to pursue their remedies under Chapter 11 rather than succumb to the hasty process that occurred. Accordingly, the judgment of the bankruptcy court denying the Trust's motion to pursue its claims against appellees was affirmed.

Appellant appealed the district court's affirmance of the bankruptcy court's decision that certain deeds appellant held were legal nullities. The panel certified a question to the Mississippi Supreme Court which stated: "When a minority member of a Mississippi limited liability company prepares and executes, on behalf of the LLC, a deed to substantially all of the LLC's real estate, in favor of another LLC of which the same individual is the sole owner, without authority to do so under the first LLC's operating agreement, is the transfer of real property pursuant to the deed: (i) voidable, such that it is subject to the intervening rights of a subsequent bonafide purchaser for value and without notice, or (ii) void ab initio, i.e., a legal nullity?" The Mississippi Supreme Court explained that the deed was neither voidable nor void ab initio, but "void and of no legal effect" because the minority member (" Michael Earwood"), as an agent of Kinwood Capital Group, L.L.C. ("Kinwood"), lacked actual or apparent authority to convey Kinwood's 520-acre tract of land and Kinwood never ratified the purported transfer.

Appellant, a Chapter 7 debtor, appealed the district court's order affirming the bankruptcy court's ruling that certain of his debts were nondischargeable under 11 U.S.C. 523(a)(4). At issue was whether loans obtained from a limited partnership that appellant managed in his capacity as officer and director of the partnership's corporate general partner were incurred through defalcation while acting as a fiduciary to the partnership. The court affirmed and held that even if the existence of the loans themselves were not a defalcation, the bankruptcy court did not err in further concluding that appellant recklessly breached his duty to the partnership by failing to protect against the increasing financial risk created by those loans by ensuring that the partnership perfected its liens on the pledged collateral, particularly when the failure accrued to his benefit.