Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Fifth Circuit

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Payments owed to a shareholder by a bankrupt debtor, which are not quite dividends but which certainly look a lot like dividends, should be treated like the equity interests of a shareholder and subordinated to claims by creditors of the debtor. The Fifth Circuit affirmed the district court's judgment and held that the deemed dividends gave the Estate benefits normally reserved for equity investors and thus subordination of all of the Estate's claims was appropriate. The court also held that the bankruptcy court did not abuse its discretion in denying discovery. Likewise, the court held that the Estate's due process right to discovery was not violated. View "French v. Linn Energy, LLC" on Justia Law

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After Double Eagle filed for Chapter 11 bankruptcy, it filed suit against MarkWest and Ohio Gathering on a contract claim in Louisiana federal court. Double Eagle then assigned its claim against defendants to one of its creditors. The Fifth Circuit vacated the district court's judgment and held that the district court erred by failing to apply the time-of-filing rule to 28 U.S.C. 1334(b) in this lawsuit that was related to a bankruptcy when filed, but then the bankruptcy connection was later dissolved. The court explained that this longstanding rule promoted efficiency and thus it would be wasteful if post-filing changes in the facts determining jurisdiction required dismissal of a case to which the parties and court had already devoted resources. In this case, the related-to-bankruptcy jurisdiction that existed at the outset of this case never went away. The court also held that failing to focus on the time of filing also infected the district court’s personal jurisdiction analysis, and the section 1334(b) jurisdiction that existed when this case was filed thus means there is both subject matter and personal jurisdiction. The court rejected defendants' remaining claims and remanded for further proceedings. View "Double Eagle Energy Services, LLC v. MarkWest Utica EMG, LLC" on Justia Law

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After a bankruptcy sale extinguished an easement of the Port, the Port filed an adversary proceeding against debtors, seeking to invalidate the sale and regain its easement. The district court affirmed the bankruptcy court's rejection of the Port's sovereign immunity and fraud claims. The Fifth Circuit affirmed the district court's judgment, finding no Eleventh Amendment violation or basis for a claim of fraud. In this case, the bankruptcy court approved a section 363(f) of the Bankruptcy Code sale "free and clear" of encumbrances, including the Port's easement; the bankruptcy court did not award affirmative relief nor deploy coercive judicial process against the Port and did not exercise in personam jurisdiction over the state; and any section 363(f) objection had to have been raised on direct appeal of the confirmation order and could not be raised in this collateral adversary proceeding. Furthermore, the Port failed to allege any false representation, and the district court did not abuse its discretion in denying the Port leave to amend. View "Port of Corpus Christi Authority v. Sherwin Alumina Co." on Justia Law

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The Fifth Circuit affirmed the bankruptcy court's denial of discharge on plaintiff's student loan debt under 11 U.S.C. 523(a)(8). The court held that there was no evidence that plaintiff's present circumstances -- her deteriorating diabetic conditions and the costs associated with it, and her inability to maintain employment -- are likely to persist throughout a significant portion of the loans' repayment period. Therefore, under the Brunner standard adopted by this court in In re Gerhardt, 348 F.3d at 91, and the vast majority of other circuit courts, plaintiff was not eligible for discharge for her student loans. View "Thomas v. Department of Education" on Justia Law

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After Whistler entered into a drilling contract with Nabors, Whistler entered into bankruptcy proceedings and rejected the contract. Nabors subsequently sought administrative priority in the bankruptcy proceeding for expenses incurred after the rejection of its contract, and the bankruptcy court granted the request in part and denied in part. The Fifth Circuit held that a creditor can establish that its expenses are attributable to the actions of the bankruptcy estate through evidence of either a direct request from the debtor-in-possession or other inducement via the knowing and voluntary post-petition acceptance of desired goods or services. The court clarified that when the debtor-in-possession induces availability and the bankruptcy estate derives a benefit from it, the ordinary cost of ensuring such availability qualifies as an administrative expense. The court remanded for the bankruptcy court to determine (1) whether Whistler induced Nabors to stay on the platform; (2) the length of time Nabors stayed on the platform because of Whistler's post-petition needs; and (3) the actual and necessary costs of staying on the platform during this time period. The court left it to the bankruptcy court to clarify its own findings regarding Nabors's provision of services. Finally, the court affirmed the bankruptcy court's denial of Nabors' requests for administrative priority in full. View "Nabors Offshore Corp. v. Whistler Energy II, LLC" on Justia Law

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The Fifth Circuit withdrew its prior opinion and substituted the following opinion. 42 U.S.C. 405(h)—which states that no claim arising under the Social Security Act can be brought under 28 U.S.C. 1331 and 1346—does not bar bankruptcy courts from exercising their jurisdiction under section 1334 to hear Social Security claims. The court joined the Ninth Circuit, holding that the plain text of section 405(h)'s third sentence does not bar section 1334 jurisdiction and the district court erred by concluding otherwise. The court offered guidance on remand, clarifying what type of decision section 405(h)'s second sentence channels. The court believed that section 405(h)'s second sentence applied only where the would-be plaintiff is challenging a decision regarding his entitlement to benefits. Accordingly, the court reversed and remanded for further proceedings. View "Benjamin v. United States" on Justia Law

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The Fifth Circuit reversed the district court's holding that the bankruptcy court erred in dismissing a post-confirmation attempt by the Oklahoma State Treasurer to obtain the right to unclaimed royalty payments owed by the oil and gas debtor. The court held that res judicata barred the claim because the Treasurer sat on its rights during the entire Chapter 11 process. In this case, the Treasurer failed to participate in the bankruptcy case and object to or appeal the plan's disposition of the Oklahoma unclaimed property in the normal course. Accordingly, the court reinstated the bankruptcy court's dismissal of the Treasurer's case. View "Linn Operating, Inc. v. Oklahoma State Treasurer" on Justia Law

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The Fifth Circuit affirmed the district court's denial of Linn Lender's post-petition default interest and held that a reasonable person would not understand the reference to Linn Lender Claims in Article III.B.3 of the bankruptcy plan and the definition of the term "Linn Lender Claims" in Article I.A.114 to incorporate by reference the post-default interest rates set forth in the proofs of claim and credit agreement. The court held that, given the availability of post-petition default interest was specifically reserved when the Final Cash Collateral Order was entered, and that the bankruptcy plan itself contained an Article entitled "No Postpetition or Default Interest on Claims," failure to make specific mention of "default interest" in Article III.B.3 indicated that the parties intended the omission. View "UMB Bank, NA v. Linn Energy, LLC" on Justia Law

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This case arose from the Chapter 11 bankruptcies of Life Partners Holdings, LPI, and LPI Financial Services (collectively, the LP Entities). The LP Entities operated an investment business through which they defrauded investors and violated securities laws by using a multi-level marketing structure to sell their life insurance investments and contracting with individuals and entities they called "Licensees" to refer potential investors in exchange for sales commissions. The district court granted the Licensees' motions to dismiss all of the creditors' trust's claims and declined to allow repleading. Count 1 alleged actual fraudulent transfer under the Texas Business & Commerce Code, Count 2 alleged constructive fraudulent transfer under the Texas Business & Commerce Code, Count 3 alleged actual fraudulent transfer under 11 U.S.C. 548(a)(1)(A), Count 4 alleged constructive fraudulent transfer under 11 U.S.C. 548(a)(1)(B), Count 5 alleged preferences under 11 U.S.C. 547, Count 6 alleged recovery of avoided transfers under 11 U.S.C. 550, County 7 alleged breach of contract, Count 8 alleged equitable subordination of the Licensees' claims against the LP Entities' bankruptcy estates; Count 9 alleged disallowance of the Licensees' claims, Count 10 alleged negligent misrepresentation, Count 11 alleged breach of the Texas Securities Act, and Count 12 alleged breach of fiduciary duties. The Fifth Circuit affirmed as to Counts 5, 8, 11, and 12, but reversed the dismissal of Counts 1-4, 6, 9, and 10, holding that these claims were adequately pleaded. Accordingly, the court remanded for further proceedings. View "Life Partners Creditors' Trust v. Cowley" on Justia Law

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This dispute between the bankruptcy court and Chapter 13 debtor's attorneys involved no-money-down business models where the debtor's attorney agrees to advance the costs of filing fees, credit counseling course fees, and credit report fees on behalf of the debtor. The bankruptcy court concluded that these fees were non-reimbursable under the district's no-look fee order and that counsel could never be reimbursed by statute. The Fifth Circuit held that debtor's counsel in this case was not entitled to additional reimbursement for advancing the costs of the filing fees, credit counseling fees, and credit report fees as administrative expenses necessary for preserving the estate under 11 U.S.C. 503(b)(1). However, 11 U.S.C. 503(b) and 330 provide bankruptcy courts with the discretion to compensate debtor's counsel for advancing the costs of filing fees, credit counseling fees, and credit report fees if they choose to do so. Therefore, the court held that the bankruptcy court did not err in interpreting its own standing order on no-look fee compensation, but that it did err in its conclusion that bankruptcy courts lack the discretion to ever award reimbursement of those fees. Accordingly, the court affirmed in part and vacated in part. View "McBride v. Riley" on Justia Law