Articles Posted in U.S. 5th Circuit Court of Appeals

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Hess sought to enforce debtor's guaranty on a contract between Hess and Premier. Debtor was a member in Premier and served as guarantor of the agreement. The agreement stated that Hess would provide certain management services related to the operation of the Fluker Pit. The bankruptcy court held that Premier breached the contract in bad faith, but the court limited the damages award to $375,000. Hess appealed to the district court, which overruled the bankruptcy court and awarded Hess the full value of the contract - $1.5 million. Debtor appealed. The court concluded that a Louisiana court would find that the bad faith damage clause did not enhance the damages owed Hess beyond the time the Fluker Pit closed. Instead, giving full effect to the bad faith damages provision, the court found that Hess was only able to establish as a "direct consequence" of the breach damages up until the November 12th date. Awarding Hess damages beyond that point would not serve the provision's purpose of conferring damages consequentially linked to bad faith breach, but instead would punitively award damages unconnected with the facts surrounding the breach. Further, Louisiana's rule on mitigation makes clear that a non-breaching party must take "reasonable efforts to mitigate the damage caused by the obligor's failure to perform." This demonstrates that damages are not set in stone, and strengthened the court's conclusion that post-breach events may effect the amount of damages award. Accordingly, the court reversed and remanded. View "Hess Mgmt. Firm, L.L.C., et al. v. Bankston, et al." on Justia Law

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A non-debtor spouse contended that her homestead rights in the Texas residence that she shares with her husband, the debtor in bankruptcy, precluded a forced sale of the property and alternatively, that if a sale occurred, she must be compensated for the loss of her homestead interest in the property. The bankruptcy court held that the non-debtor spouse's homestead rights were limited to the dollar amount of the exemption in 11 U.S.C. 522(p) and that there was no unconstitutional taking of the value of the non-debtor spouse's interest in the homestead. The court affirmed the district court's affirmance of the bankruptcy court's holdings. View "Kim, et al. v. Dome Entertainment Center, Inc." on Justia Law

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Debtor challenged the district court's determination that proceeds from the post-certification sale of an exempted homestead revert to the estate if not reinvested within six months. The "snapshot rule" of bankruptcy law holds that all exemptions are determined at the time the bankruptcy petition is filed, and that they do not change due to subsequent events. In re Zibman held that proceeds from the pre-petition of a sale of a Texas homestead are not permanently immune from bankruptcy creditors. Under the court's precedent, the sale of the homestead voided the homestead exemption and the failure to reinvest the proceeds within six months voided the proceeds exemption, regardless of whether the sale occurred pre- or post- petition. This interpretation of 11 U.S.C. 522(c) is in accordance with Texas law and the decisions of the court. Accordingly, the court affirmed the district court's judgment. View "Viegelahn v. Frost" on Justia Law

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Amzak appealed the district court's summary judgment on its loan loss claims against its title insurance policy provider and related entities. The court concluded that Amzak failed to show that it suffered actual loss because of a failure of title and STL could not be held responsible for any harm suffered by Amzak. The court formalized the holding in First State Bank v. American Title and likewise rejected the guarantee rationale of Citicorp Savings of Illinois v. Stewart Title Guaranty Co., and agreed with the district court's rejection of Amzak's argument that STL breached the title policy at the time of the loan because its mortgage was voidable at that time. The court also disposed of Amzak's negligence claim where STL's delay in making a complete filing of Amzak's mortgage was not a legal cause of Amzak's loss. Accordingly, the court affirmed the judgment of the district court. View "Amzak Capital Mgmt. v. Stewart Title" on Justia Law

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CULS appealed the dismissal of its petition for involuntary bankruptcy filed against Green Hills under 11 U.S.C. 303. Congress has made clear that a claimholder did not have standing to file an involuntary petition if there was a bona fide dispute as to liability or amount of the claim. The court affirmed the bankruptcy court's dismissal on the alternative ground that CULS lacked standing to bring the involuntary petition where CULS' claim was subject to a bona fide dispute. The court denied Green Hills' motion for sanctioning CULS for filing a frivolous appeal and concluded that sanctions were not appropriate in this case where CULS' contentions, while not ultimately meritorious, were not entirely unreasonable. Accordingly, the court affirmed the bankruptcy court's dismissal, granted CULS' motion for judicial notice of an order denying in part another motion by CULS for summary judgment, and denied Green Hills' motion for sanctions. View "Credit Union Liquidity Servs. v. Green Hills Dev. Co." on Justia Law

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This dispute arose out of a complicated bankruptcy proceeding. On appeal, Lender challenged the district court's judgment which, in relevant part, disallowed Lender's claim for a contractual prepayment consideration. Applying Colorado law, a lender was not entitled to a prepayment penalty when the lender chooses to accelerate the note. Absent a clear contractual provision to the contrary or evidence of the borrower's bad faith in defaulting to avoid a penalty, a lender's decision to accelerate acts as a waiver of a prepayment penalty. In this instance, the plain language of the contract plainly provided that no Prepayment Consideration was owed unless there was an actual prepayment, whether voluntary or involuntary. Accordingly, the acceleration of the Note due to GCMM's default by nonpayment under Article 4 did not trigger the obligation to pay the Prepayment Consideration under Article 6. View "Bank of New York Mellon v. GC Merchandise Mart, L.L.C., et al." on Justia Law

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Acting as receiver, the FDIC conveyed substantially all of WaMU's assets and liabilities to JPMorgan Chase, including certain long-term real-estate leases. At issue was whether the owners of the leased tracts could enforce the leases against Chase by virtue of the FDIC's conveyance. The court held that, in the interest of maintaining uniformity in the construction and enforcement of federal contracts, the landlords did not qualify as third-party beneficiaries. The court concluded, however, that the landlords have "standing" to prove the content of the Agreement and that the Agreement, properly construed, was a complete "assignment" sufficient to create privity of estate under Texas law. Accordingly, the court affirmed the judgment of the district court. View "Excel Willowbrook, L.L.C., et al. v. JPMorgan Chase Bank, N.A., et al." on Justia Law

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Over the creditor's protests, the trustee sought to settle the claims at issue, and the creditor ultimately re-acquired them at auction. The bankruptcy court then found that the creditor had paid the trustee's attorney's fees even after the two had become adverse over the settlement issue, and dismissed the adversary proceeding based on its inherent power to sanction a party for abuse of judicial process. The district court affirmed and the creditor appealed. The court concluded that the bankruptcy court had constitutional authority to enter final judgment in this adversary proceeding; because the creditor failed to file a timely motion requesting the bankruptcy court to abstain, and because the claims at issue were "core" in nature, the district court's decision not to abstain was proper; and because the bankruptcy court failed to find by clear and convincing evidence that the creditor acted in bad faith, it erred in invoking its inherent sanction power. Accordingly, the court reversed and remanded for further proceedings. View "Cadle Co. v. Moore, III, et al." on Justia Law

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Energytec, owner and operator of gas pipelines, filed for bankruptcy relief under Chapter 11 in 2009. The bankruptcy court authorized a sale of a pipeline system to Red Water Resources, but reserved for later determination whether the sale was free and clear of Newco's right to certain fees and other interests in the pipeline. A year after the sale, the bankruptcy court ruled that Newco's rights were not covenants running with the land and that the sale of the pipeline system was free and clear of Newco's interests. The district court affirmed. The court vacated, however, concluding that Newco's interests, including a transportation fee, security interest, and right to consent to assignments, were covenants running with the land. The court remanded for further proceedings. View "Newco Energy v. EnergyTec, Inc., et al." on Justia Law

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The bankruptcy court ordered debtor's counsel to return all consideration he received, but in so doing it imposed an additional sanction beyond return of compensation. A bankruptcy judge may regulate attorney compensation by ordering debtor's counsel to return to the estate excessive compensation, 11 U.S.C. 329(b). Separately, a bankruptcy judge has authority to discipline attorneys who violate the disclosure requirements of the Bankruptcy Code and Rules. In this case, the court reversed and remanded the bankruptcy court's order because a bankruptcy judge's reach under the plain language of section 329(b) was limited to attorney compensation. View "Baker v. Cage" on Justia Law