Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Fifth Circuit
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The Federal Energy Regulatory Commission (“FERC”), anticipating Petitioner Gulfport Energy Corporation’s (“Gulfport”) insolvency, issued four orders purporting to bind the petitioner to continue performing its gas transit contracts even if it rejected them during bankruptcy. Petitioner asked the Fifth Circuit to vacate those orders. The court granted the petitions and vacated the orders holding that FERC cannot countermand a debtor’s bankruptcy-law rights or the bankruptcy court’s powers.   Gulfport attacked attacks FERC’s orders on two fronts. Gulfport first says that FERC lacked authority to issue them. It then contends that the orders are unlawful because they violate the Bankruptcy Code and purport to restrain Gulfport’s bankruptcy-law rights and the powers of the bankruptcy court. The court explained that FERC did have authority to issue the orders. But because the orders rested on an inexplicable misunderstanding of rejection, the court must vacate them all. The court wrote that each order rests on the incorrect premise that rejecting a filed-rate contract in bankruptcy is something more than a breach of contract.   The court further wrote that FERC can decide whether actual modification or abrogation of a filed-rate contract would serve the public interest. It even may do so before a bankruptcy filing. But rejection is just a breach; it does not modify or abrogate the filed rate, which is used to calculate the counterparty’s damage. So FERC cannot prevent rejection. It cannot bind a debtor to continue paying the filed rate after rejection. And it cannot usurp the bankruptcy court’s power to decide Gulfport’s rejection motions. View "Gulfport Energy Corporation v. FERC" on Justia Law

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Fountain of praise, a church, leased space to Central Care Integrated Health Services. Shortly after the execution of the lease, the relationship soured when the parties disagreed on the frequency and amount of rent payments. Eventually, Fountain of Praise terminated the lease and successfully evicted Central Care from the premises.Subsequently, Central Care filed for Chapter 11 reorganization. Central Care then sued Fountain of Praise in state court, claiming breach of contract and unjust enrichment. Fountain of Praise then removed the case to bankruptcy court as an adversary proceeding. The bankruptcy court entered judgment in favor of Fountain of Praise, finding that any breach was excusable due to Central Care's failure to make timely rent payments and that Central Care lacked the requisite interest in the property for an unjust enrichment claim.Central Care appealed, and the district court judge assigned to the case reassigned the case to a magistrate judge who affirmed the bankruptcy court's judgment.On appeal, the Fifth Circuit vacated the magistrate judge's order, finding that the district court improperly authorized referral of the appeal from a bankruptcy court decision to a magistrate judge. Under 28 U.S.C. Section 158, appeals from a bankruptcy court must be heard either by the district court or a panel of bankruptcy court judges. View "South Central v. Oak Baptist" on Justia Law

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A wrongful-death suit ended in default when a trucking company went bankrupt. That left two plaintiffs who both claimed to be the decedent’s common-law wife. The district court awarded damages to just one of them because Texas does not allow bigamy. The other putative wife maintains that the district court had to award damages to both plaintiffs.The Fifth Circuit affirmed the district court’s decision holding that a defaulting defendant is deemed to admit a plaintiff’s factual allegations, but the district court still may inquire whether those allegations demonstrate legal liability. In the putative wife’s amended complaint, she failed to make specific allegations regarding any of the elements of common-law marriage.The court reasoned that the statements she made were too “bare and conclusory” to be considered a well-pleaded factual allegation. After reviewing the putative wife’s complaint, the district court concluded that she and the decedent had agreed to be married, had cohabited, and had held themselves out as married. The court did not reject any of her factual allegations—it merely rejected the legal conclusion that she was married to the decedent. That rejection was proper in light of the other woman’s factual allegations.Moreover, where a plaintiff, but for the defendant’s default, would never have been able to show legal entitlement to a judgment, denial of that judgment is not itself a miscarriage of justice. There is nothing inequitable about allowing a district court to consider the facts alleged by all plaintiffs and award default judgment to only those whose claims are not precluded. View "Escalante v. Lidge" on Justia Law

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Appellants, the Edwards Family Partnership (“EFP”) and Beher Holdings Trust (“BHT”), two companies owned by Edwards and collectively referred to as the “Edwards entities” and Appellee, the trustee who presently manages Dickson’s former company, Community Home Financial Services Corporation (“CHFS”), each raised various issues on appeal relating to the business relationship between EFP, BHT, and CHFS. The dispute revolved around two business transactions: (1) the initial home improvement loans from Edwards to CHFS and (2) a subsequent arrangement of seven mortgage portfolios of subprime loans (the “Mortgage Portfolios”) purchased as “joint ventures” between Edwards and CHFS.   The Fifth Circuit affirmed the district court’s and bankruptcy courts’ conclusion that the Appellant’s right to repayment for their funding of certain mortgage portfolios was barred by the statute of frauds.  Appellants argued the “statute of frauds does not apply to agreements already fully performed by one party; or to agreements capable of being fully performed within 15 months, even if performance is not expected.” The court reasoned that the bankruptcy court’s determination that CHFS could not repay the Edwards entities until it had collected on the underlying loans in the Portfolios,which would take more than five years, based on the terms of the loan agreement is plausible in light of the record. View "Edwards Family Partnership, et al v. Johnson" on Justia Law

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Epic Companies, LLC ("Epic") was a general contractor specializing in the decommissioning of oil platforms. Epic hired the vessel Nor Goliath to lift oil platform components out of the water. These components were then transported to shore by tugboats, which were owned by various other companies.When Epic went bankrupt, the company's suppliers filed suit in the district court to recoup their costs. Several towing companies joined in the suit, asserting maritime liens under the Commercial Instruments and Maritime Liens Act ("CIMLA") against the Nor Goliath. The towing companies claimed that they provided "necessary services" by towing the barges ashore. The district court granted summary judgment in Nor Goliath's favor.The Fifth Circuit affirmed. CIMLA provides that those who provide "necessary services" to a vessel obtain a maritime lien against the vessel and may bring a civil claim to enforce this lien. Under 46 U.S.C. Sec. 31301(4), necessary services include repairs, supplies, towage, and the use of dry dock or marine railway. Here, the Nor Goliath's role was to lift platform components out of the water and place them on barges. Thus, the Nor Goliath's necessaries were the goods and services used to accomplish this task, but not those related to Epic's larger goal of decommissioning oil platforms. Thus, the Fifth Circuit held that the towing companies did not perform necessary services to the Nor Goliath. View "Central Boat Rentals v. M/V Nor Goliath" on Justia Law

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The Fifth Circuit affirmed the bankruptcy court's judgment and held that, under the particular circumstances presented here, Ultra Resources is not subject to a separate public-law obligation to continue performance of its rejected contract, and that 11 U.S.C. 1129(a)(6) did not require the bankruptcy court to seek FERC's approval before it confirmed Ultra Resource's reorganization plan.Applying In re Mirant Corp., 378 F.3d 511 (5th Cir. 2004), the court concluded that the power of the bankruptcy court to authorize rejection of a filed-rate contract does not conflict with the authority given to FERC to regulate rates; rejection is not a collateral attack upon the contract's filed rate because that rate is given full effect when determining the breach of contract damages resulting from the rejection; and in ruling on a rejection motion, bankruptcy courts must consider whether rejection harms the public interest or disrupts the supply of energy, and must weigh those effects against the contract's burden on the bankrupt estate. Because Mirant clearly holds that rejection of a contract is not a collateral attack on the filed rate, the court concluded that FERC does not have the authority to compel continued performance and continued payment of the filed rate after a valid rejection. The court rejected any further arguments to the contrary. View "Federal Energy Regulatory Commission v. Ultra Resources" on Justia Law

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The Fifth Circuit reversed the district court's judgment reversing the bankruptcy court's denial of claimants' motions seeking leave to file their respective proofs of claim. Considering the four Pioneer factors, the court concluded that the bankruptcy court did not abuse its discretion in determining that claimants failed to meet their burden of proving excusable neglect. Although the danger-of-prejudice factor weighs in favor of claimants, the bankruptcy court did not abuse its discretion by holding that the length-of-delay factor weighs in favor of debtors. Furthermore, the bankruptcy court did not abuse its discretion by determining that the reason-for-the-delay factor and the good faith factor weighs in debtors' favor. Given the exceptionally deferential standard of review applicable here, and because the prejudice factor does not outweigh the other three Pioneer factors, the court cannot say that the bankruptcy court abused its discretion. View "West Wilmington Oil Field Claimants v. Nabors Corporate Services, Inc." on Justia Law

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The bankruptcy court authorized the Chapter 11 trustee to sell the debtor’s Bourbon Street, New Orleans property free and clear of all claims, liens, and interests under 11 U.S.C. Sec. 363(f). Two lessees of the property, together with the sole owner of the debtor, filed objections to the sale and an alternative request seeking either adequate protection under Section 363(e) or rejection of the leases, all of which the bankruptcy court denied. The lessees, insiders of the debtor company, executed and recorded leases(for below-market rates) junior to the rights of the mortgagee AMAG. Had there been no bankruptcy, AMAG could have foreclosed under state law and wiped out the junior interests.The Fifth Circuit denied the objectors’ petition for mandamus relief. Bankruptcy Code sections 363(f)(1) and 365(h)(1)(A)(ii), qualify what a debtor can do. The Code recognizes and defers to state law. The essential state law rights of the tenants, in this case, are limited by the senior mortgagee’s prior lien on the property; neither Section 363(e) nor 365(h)(1)(A)(ii) offers protection. View "In Re: Royal Street Bistro, L.L.C." on Justia Law

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In an action arising from the bankruptcy of CISH, the Fifth Circuit affirmed the bankruptcy court's sanction of appellants. Appellants had filed an adversary proceeding asserting causes of action that the bankruptcy court had placed in trust for CISH's creditors, but the bankruptcy court concluded that by attempting to seize control of trust property, appellants had knowingly violated its order confirming the liquidation plan.The court concluded that it lacked jurisdiction to review the dismissal order because appellants did not file a notice of appeal on the adversary docket and the notice of appeal did not comply with the requirements of the bankruptcy rules for appealing the adversary proceeding. In regard to the punitive sanctions, appellants failed to allege an injury-in-fact and the court lacked jurisdiction. Finally, because the bankruptcy court had jurisdiction over the Cleveland Imaging bankruptcy case, it had jurisdiction to enter the sanctions order, too; likewise, the court has jurisdiction to consider appellants' appeal; appellants have standing to appeal the sanctions order; the bankruptcy court did not err in finding that appellants violated its confirmation order by filing their adversary proceeding and contentions to the contrary lack merit; and clear and convincing evidence supported the bankruptcy court's finding of bad faith. View "Kreit v. Quinn" on Justia Law

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The Fifth Circuit affirmed the district court's judgment affirming the bankruptcy court's orders in these consolidated cases arising out of the bankruptcy of PFO and a dispute over the validity and scope of the bankruptcy court's orders prohibiting one non-debtor, VSP, from asserting claims against two non-debtors, Hillair Capital Investments L.P. and Hillair Capital Management L.L.C.The court found that the bankruptcy court had jurisdiction to enter the Lift Stay Order and it retained jurisdiction to interpret and enforce its orders, as it did in the 2019 orders. The court concluded that the bankruptcy court would not have abused its discretion in refusing to abstain under 28 U.S.C. 1334(c)(2) as there was no timely motion for abstention. The court also concluded that the district court correctly interpreted the Lift Stay Order as prohibiting VSP's assertion of claims against Hillair in the California Action. Finally, the court affirmed the award of attorneys' fees and the earlier bankruptcy court's orders. View "VSP Labs v. Hillair Capital Investments, LP" on Justia Law