Fifth Circuit Review: November 2014

November brought four bankruptcy opinions from the Fifth Circuit covering everything from interpleader to Navajo law.

Holt Texas, Ltd. v. Zaylor (In re T.S.C. Seiber Services, L.C.), No. 13-41153 (5th Cir. 11/3/14), opinion found here.   This case was about property of the estate but turned on Texas state law.  A property owner hired the Debtor to build a pipeline.  The Debtor did not pay its subcontractors.   The property owner filed an interpleader action to determine who should receive the remaining funds.    The Bankruptcy Court ruled that the subcontractors did not have a valid lien against the interpled funds and that they were property of the estate.   The Fifth Circuit reversed, finding that the subcontractors had valid liens against the interpleaded funds.   The case has a great quote on why the mere act of interpleading funds does not immediately relieve the interpleading party from liability:

If this were so, the interpleader would be the final judge of its own legal obligations relative to the dispute, by depositing a sum solely determined by it, washing its hands of any relationship to the dispute and walking away whistling Yankee Doodle.  

Opinion, p.9.   The opinion has good discussions of Texas mineral lien law and interpleader.  

Barron & Newburger, P.C. v. Texas Skyline Interests, et al (In re Woerner), No. 13-50075 (5th Cir. 11/5/14), opinion found here.   The Fifth Circuit vacated its prior opinion reported at 758 F.3d 693 and agreed to grant en banc review in a case challenging the holding contained in Matter of Pro-Snax Distributors, Inc. , 157 F.3d 414 (5th Cir. 1998) where the court held that professional services must result in an identifiable, material and tangible benefit in order to be compensated.   In an important development, the United States Trustee supported rehearing en banc.   Disclosure:  My firm is the Appellant in this case.

 Orrill, Cordell, & Beary, L.L.C., v. Kaye (Matter of Kaye), No. 13-31123 (5^th Cir. 11/17/14)(unpublished), opinion found here.   This case concerns whether an order is final for purposes of appeal.    Orrill, Cordell & Beary, LLP was employed as special counsel for the Trustee on a contingency fee basis.  It appealed the Bankruptcy Court’s calculation of the amount of its fee.   The District Court affirmed in part and reversed in part.  The District Court found that the Bankruptcy Court did not have a sufficient basis for calculating the value of the contingent fee and remanded for a new determination.  The firm appealed to the Fifth Circuit.   The Fifth Circuit dismissed the appeal for lack of jurisdiction for the reason that the order remanding the case was not a final judgment.   The Court explained that an order remanding is not final if it requires “extensive further proceedings” as opposed to merely ministerial tasks.   Because the Bankruptcy Court was required to conduct a new factual hearing, the order was not final for purposes of appeal.

Morton v. Yonkers (Matter of Vallecito Gas, LLC), No. 13-10926 (5^th Cir. 11/19/14), opinion be found here.   This case concerns the interest of certain overriding royalty holders who purchased their interests from a third party after the bankruptcy case had been filed.   Morton was Trustee for Vallecito Gas, LLC.  Its primary asset was an oil and gas lease known as the Hogback Lease.   Morton went to sell the lease only to find out that a related party had sold overriding royalty interests in the lease.   Morton sought to void the sales on the basis that the assignment had not been approved by the Navajo Nation where the lease was located.   Additionally, he argued that they were not good faith purchasers entitled to a credit against the estate for the amounts they had paid.   The Bankruptcy Court found that the Trustee could not raise lack of consent for the transfer and that the purchasers had acted in good faith even though the seller had acted fraudulently.    The Fifth Circuit affirmed.