The Fifth Circuit decided cases dealing with
appellate procedure, exemptions, judicial estoppel, jurisdiction, sanctions,
standing and surcharging collateral during the fourth quarter of 2015. A common theme among the cases is parties
being disappointed in a variety of contexts, including having an appeal
dismissed on procedural grounds, having a lawsuit dismissed based on incomplete
filings in a bankruptcy case, losing exemptions based on unfortunate timing and
failure to establish damages after dismissal of an involuntary petition.
Appellate
Procedure
Neurology andNeurophysiology Associates, P.A. v. Tarbox (Matter of Neurology andNeurophysiology Associates, P.A.), 2015 U.S. App. LEXIS 18007 (5th
Cir. 10/15/15).
Debtor’s
charter was forfeited in 2009. Under
Texas law, it remained as a legal entity for three years for purposes of
winding up. Five years later, debtor
filed a chapter 7 petition. Case was
dismissed on motion of a creditor.
Debtor
then appealed the dismissal but failed to file a timely brief in the district
court. Creditor moved to dismiss the
appeal. Several days later, debtor
filed a motion to extend time and a proposed brief. Debtor contended that its counsel did not
receive the Notice of Docketing Record because notice was sent to an outdated
email address. District court
dismissed the appeal. The Fifth
Circuit found that the district court did not abuse its discretion in denying
the request to extend the deadline to file the brief.
Exemptions
Brown v. Sommers(Matter of Brown), 2015
U.S. App. LEXIS 20457 (5th Cir. 11/24/15).
Chapter
11 debtor who was domiciled in Florida died during pendency of case. Court converted case to chapter 7 and
appointed a personal representative to assert the interest of the debtor. Personal representative asserted an exemption
under the Texas Estates Code and spouse asserted her own allowance under the
Texas Estates Code. Bankruptcy Court
entered final order providing that surviving spouse could not be paid out of
bankruptcy estate and submitted proposed findings and conclusions to district
court on allowance to be granted from probate estate. Surviving spouse appealed from District
Court’s order adopting bankruptcy court’s findings but not from bankruptcy
court’s separate final order. As a
result, surviving spouse forfeited appeal on issue of whether widow’s allowance
could be paid from bankruptcy estate.
Although
debtor was domiciled in Florida at time of his filing, he had not lived there
for two years. Because he lived in Texas
for the 180 days preceding two years before the filing date, his exemptions
were determined by Texas law. However,
personal representative could not claim allowance under Texas Estates Code
because debtor was alive on date of petition and snapshot rule applied. Court held that Frost and Zibman did not
abrogate the snapshot rule but instead operated to limit exemption based on
subsequent events.
Surviving
spouse was not entitled to allowance under Texas Estates Code because debtor
was not domiciled in Texas at time of death.
Instead, allowance was governed by Florida law where he was
domiciled. Florida only allowed a
widow’s allowance of $18,000. Further,
this amount could only be paid from the probate estate, not the bankruptcy
estate.
Judicial
Estoppel
Allen v. C &H Distributors, LLC, 2015
U.S. App. LEXIS 22567 (5th Cir. 12/23/15)
Debtors
filed chapter 13 in 2009 and confirmed a plan. Approximately a year and a half
into their chapter 13 case, the debtors filed a personal injury suit. They did not disclose the suit in their
pending bankruptcy. In April 2014, the
bankruptcy court closed the case without a discharge due to failure to complete
a financial management course. In
September 2014, the defendants filed a motion for summary judgment based on
judicial estoppel. The district court
granted this motion.
The
Fifth Circuit affirmed, finding that the debtors had taken inconsistent
positions, that the bankruptcy court had accepted the debtors’ position in
confirming the plan and that the failure to disclose was not inadvertent.
The
court rejected the argument that the debtors had no motive to conceal the asset
since their case was closed without a discharge. However, the court found that the relevant
time frame is when the debtors failed to make the disclosure so that the
subsequent failure to receive a discharge was not material.
The
Fifth Circuit modified the district court’s order to allow the case to be
reopened in the event that the debtor’s bankruptcy was re-opened and a chapter
7 trustee chose to intervene.
Jurisdiction
Collins v.Sidharthan (Matter of KSRP, Ltd.), 2015 U.S. App. LEXIS 21807 (5th
Cir. 12/15/15)
KSRP
owned and operated a hotel in South Padre Island. It contacted Collins to represent it in
making and litigating storm damage claims against insurance companies. Sidharthan signed a contingency fee
agreement on behalf of KSRP.
However,
when Collins attempted to represent KSRP on claims, Sidharthan denied that he
was authorized to do so. Collins sued
both KSRP and Sidharthan. Collins
non-suited his claims against KSRP.
Nine days later, KSRP filed for bankruptcy. Sidharthan removed the state court action to
bankruptcy court and asserted an indemnity claim against KSRP.
The
bankruptcy court found that it had “related to” jurisdiction because of
Sidharthan’s indemnity claim against the estate. Because the parties did not consent to
entry of a final judgment, the bankruptcy court submitted proposed findings of
fact and conclusions of law to the district court. The bankruptcy court found that Collins’s
claims were against KSRP and not Sidharthan.
However, since Collins had non-suited the claims against KSRP, he could
not recover. Because KSRP had been
dismissed from the state court action and Sidharthan had not filed a claim in
the bankruptcy, he did not have a claim.
The district court adopted the bankruptcy court’s findings.
Collins
appealed, alleging that the bankruptcy court lacked jurisdiction under 28
U.S.C. §1334. Collins claimed that the
indemnity claim raised by Sidharthan was illusory and should not have conferred
jurisdiction on the bankruptcy court.
The Fifth Circuit held that jurisdiction could not be based on the
outcome of the case. There was related
to jurisdiction so long as the case could conceivably had an effect on the
estate being administered in bankruptcy.
Had the indemnity ot claim been successful, it would have had an effect
on the estate. Therefore, jurisdiction
was present.
Sanctions
Treaty EnergyCorp. v. Hallin (Matter of Treaty Energy Corp.), 619 Fed. Appx.
443 (5th Cir. 10/27/15).
Debtor
sought sanctions after involuntary petition against it was dismissed. Part of its damage claims included an allegation
that it was forced to sell restricted shares at a discount due to the
bankruptcy. The bankruptcy court
granted summary judgment finding that the restricted shares sold for the same
amount before, during and after the involuntary petition. Additionally, the debtor failed to
establish that it lost an actual sale at a higher price.
Standing
FortuneNatural Resources Corp. v. United States Department of Justice,
806 F.3d 363 (5th Cir. 11/19/15)
Fortune held a 12.5% interest in a lease operated by
ATP Oil & Gas and also filed an unsecured claim in its bankruptcy. ATP sought to sell substantially all of its
assets, but did not seek to sell the lease in which Fortune had an
interest. Fortune objected to the
sale. The bankruptcy court approved the
sale over Fortune’s objection. Fortune
appealed to the district court.
However, the sale order was not stayed and the sale closed. The district court dismissed the appeal on
the basis that Fortune lacked standing to appeal and because the appeal was
statutorily moot due to the fact that the sale had closed.
The Fifth Circuit affirmed. The Fifth Circuit held that in order to
appeal, the party must be a “person aggrieved,” a standard which requires that
the party must be “directly
and adversely affected pecuniarily by the order of the bankruptcy court." Fortune argued that because prior versions
of the sale order arguably provided for payment of decommissioning costs associated
with Fortune’s lease that the failure to include this provision in the final
order directly and adversely affected its pecuniary interest. However, the Fifth Circuit held that what
was relevant was not whether another possible sale order would have been better
for Fortune but whether Fortune could have required payment of the
decommissioning costs from the estate if the sale had not taken place. Because Fortune could not show that it could
have accessed the assets of the estate but for the sale order, it lacked standing.
Surcharge
Collateral
SouthwestSecurities, FSB v. Segner (Matter of Domistyle, Inc.). 2015 U.S. App.
LEXIS 22787 (5th Cir. 12/29/15)
Trustee
attempted to sell property subject to secured creditor’s lien. However, only offer received was below the
amount of secured debt and lender did not agree to sale. Trustee then abandoned the property. Trustee sought to surcharge collateral for
amounts spent by estate to preserve the property. Creditor argued that amounts spent while
trustee was trying to sell the property were for the benefit of the estate
rather than for the creditor and could not be surcharged under 11 U.S.C.
§506(c). Bankruptcy court allowed
surcharge as a priming lien. Fifth
Circuit affirmed, finding that creditor’s argument would gut §506(c).
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