Justia Bankruptcy Opinion SummariesArticles Posted in US Court of Appeals for the Fifth Circuit
Edwards Family Partnership, LP v. Johnson
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
Deutsche Bank Trust Co. v. U.S. Energy Development Corp.
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
Evolve Federal Credit Union v. Barragan-Flores
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
Hobbs v. Buffets, LLC
This case concerns challenges to a 2017 law imposing a temporary but substantial increase in quarterly fees for large Chapter 11 debtors. The Fifth Circuit held that the fee increase is constitutional and applies in this case. The court agreed with the bankruptcy court and its sister circuits that "disbursements" includes all payments a debtor makes. The court explained that, because "disbursements" include all the payments Buffets made in 2018, its roughly $60 million of quarterly disbursements qualify for the heightened fees. The court concluded that the Amendment applies to cases like Buffets' that were pending when the Amendment took effect. The court explained that the 2017 Amendment is prospective and the court found no uniformity problem.The court held that the fee increase easily survives rational basis review where it addresses a shortfall in the U.S. Trustee System Fund, the fee increase is directly tied to the deficit, and it is reasonable to have large debtors shore up the system's finances as their cases typically place greater burdens on the system. Furthermore, taxes and user fees are not takings under the Fifth Amendment. In this case, Buffets had disbursements exceeding $1 million for each of the first three 2018 quarters. The court concluded that the fee increase applies to those disbursements even though the case was pending before the increase became law and the fee increase is constitutional. Accordingly, the court reversed and remanded for modification of the fee orders. View "Hobbs v. Buffets, LLC" on Justia Law
Rohi v. Brewer
The Fifth Circuit reversed the district court's decision affirming the bankruptcy court's denial of plaintiff's motion for leave to amend. In this case, plaintiff sought to amend his complaint to include allegations that the Brewer & Pritchard attorneys assured him during a brief recess during bankruptcy proceedings that they would treat the bankruptcy court's proposed fees as part of plaintiff's "Gross Recovery" under his written agreement with Brewer & Pritchard.The court held that had plaintiff been granted leave to amend his complaint, his proposed claims—whatever their merit—would not have been subject to dismissal under the doctrine of res judicata. The court explained that the "conduct" plaintiff seeks to challenge is the alleged breach of fiduciary duty—the failure to follow through on the new representations supposedly made to him during the November 2017 hearing. Furthermore, at the time of the hearing, plaintiff could not have even known that the attorneys' assurances were misrepresentations, let alone that he should challenge them as such. The court remanded with instructions that plaintiff's motion for leave to amend be granted. View "Rohi v. Brewer" on Justia Law
Yaquinto v. Ward
The Fifth Circuit held that the Bankruptcy Court had the equitable power emanating from 11 U.S.C. 105(a) to correct any error it may have committed in changing the date of the first creditors' meeting after the case was transferred out of the Eastern District. In this case, the Objectors reasonably relied on the issuance by the Northern District Bankruptcy Court's Clerk of a second, later date for the section 341(a) initial creditors' meeting and a corresponding new, later deadline for filing objections to discharge. The court also held that the Bankruptcy Court correctly denied debtor's discharge under section 727(a)(4)(A), and that the Bankruptcy Court was correct in finding that debtors' discharge could also be denied under section 727(a)(5). View "Yaquinto v. Ward" on Justia Law
Ridgeway v. Stryker Corp.
In 2001-2013, Ridgeway worked for Stryker, which believed that Ridgeway intended to use its confidential business information at his next job. Stryker sued Ridgeway. A jury found that Ridgeway had breached his contractual obligations, breached his fiduciary duty, and violated Michigan’s Uniform Trade Secrets Act (MUTSA) and that the MUTSA violation was willful and malicious for purposes of an award of attorney’s fees. Ridgeway filed a Chapter 11 bankruptcy. The automatic stay caused by the filing of the petition prevented Stryker from making an attorney’s fee request in the Michigan proceedings. Stryker filed a proof of claim for $2,272,369.54, supported by hundreds of pages of time entries; the amount claimed and the corresponding time entries do not just relate to the lawyers’ work on the MUTSA claim. Stryker argued that, under the “Common Core” doctrine, its win on the MUTSA claim entitles it to attorney’s fees for all of its claims. Ridgeway argued that fee recovery under the Common Core doctrine “is reserved for fee awards in civil rights cases.”The bankruptcy court allowed Stryker’s proof of claim, including fees claimed under the Common Core doctrine. The district court and Fifth Circuit affirmed. Ridgeway has not shown that Michigan law requires statutory attorney’s fees to be “proved at trial.” The court upheld the striking of Ridgeway's "Common Core" objection as a sanction. Ridgeway did not comply with a court order to specify to which charges his objection applied. View "Ridgeway v. Stryker Corp." on Justia Law
Diaz v. Viegelahn
The Fifth Circuit held that section 4.1 of the Local Plan, which requires debtors in the Western District of Texas turn over to the bankruptcy trustee any tax refund amounts they receive in excess of $2,000, is invalid because it abridges debtors' substantive rights and conflicts with the Supreme Court's guidance on 11 U.S.C. 1325(b)(2).In this case, the bankruptcy court confirmed debtor's revised Chapter 13 plan which did not strike Section 4.1 or contain any nonstandard provision in Section 8. Therefore, the court vacated the bankruptcy court's confirmation of debtor's revised plan and remanded to allow her to file a new plan. View "Diaz v. Viegelahn" on Justia Law
Holland v. Westmoreland Coal Co.
The Fifth Circuit affirmed the bankruptcy court's ruling that the Coal Act obligations may be modified by Section 1114 of the Bankruptcy Code, which requires a debtor to keep paying benefits unless those benefits are modified through either an agreement between the debtor and the retirees' representative or a court order. The court also held that a Section 1114 modification is allowed only if the debtor and the retirees’ representative agree or the bankruptcy court orders changes after finding that the equities favor modification. The court clarified that a court must find that the principal purpose of the transaction is not to avoid liability under the Act.In this case, Westmoreland proposed modifying its obligations under the Coal Act pursuant to Section 1114. The Trustees of the Combined Plan and the 1992 Plan responded by filing a complaint for a declaratory judgment that Coal Act obligations are not "retiree benefits" and thus cannot be modified under Section 1114. View "Holland v. Westmoreland Coal Co." on Justia Law
SE Property Holdings, LLC v. Green
After debtor filed for Chapter 7 bankruptcy, SEPH sought a judgment of nondischarge for $41 million that debtor owed. SEPH argued that debtor violated 11 U.S.C. 523(a) through two improper transactions: 1. intentionally diverting funds from SEPH by making disguised distributions to himself via sham real estate investments; and 2. purposefully withholding the Livingston Parish receivables from SEPH. The district court granted summary judgment in favor of debtor.The Fifth Circuit held that SEPH has raised a genuine dispute of material fact as to the impropriety of the Livingston Parish transaction. The court held that the bankruptcy court erred in assessing the evidence, and the issue of who to believe -- debtor (that he did receive consent) or SEPH (that no such consent was given) -- is a credibility determination for a finder of fact, not a query for summary judgment review. However, the court held that the bankruptcy court was correct to grant summary judgment in debtor's favor as to the disguised distribution transaction. Accordingly, the court affirmed in part, reversed in part, and remanded in part. View "SE Property Holdings, LLC v. Green" on Justia Law