Fifth Circuit Report: 4th Quarter 2017

The fourth quarter of 2017 was another slow period for Fifth Circuit opinions dealing with bankruptcy.  There was only one published opinion and there were several opinions that I found on the Fifth Circuit's page but were not in LEXIS.  Nevertheless, here they are for your consideration.   The cases cover mootness, standing, and verbal statements about financial condition.

 

Dick v. Colo Hous. Enters., LLC, 872 F.3d 709 (5th Cir. 10/4/17)

Debtor sought to prevent a foreclosure sale including filing several bankruptcies.  Two years after the last bankruptcy was dismissed, the substitute trustee posted the property for foreclosure.   The Debtor obtained a TRO in state court.  The Defendants removed the case to federal court.  The U.S. District Judge denied the request for a preliminary injunction.   The Debtor appealed and requested a stay pending appeal in the Fifth Circuit.   The stay was requested the day before the foreclosure sale and was approved the next day.  However, by this time, the substitute trustee had already conducted the foreclosure sale and sold the property to the lender.

The lender moved to the dismiss the appeal as moot.    The Debtor argued that the Court could still grant relief since it could order the lender to rescind the foreclosure.   The Debtor relied on an unpublished opinion.   However, there was a published opinion stating that "[i]f the debtor fails to obtain a stay, and if the property is sold in the interim, the district court will ordinarily be unable to grant any relief."   Matter of Sullivan Central Plaza I, Ltd., 914 F.2d 731, 732 (5th Cir. 1991).   Based on the rule of orderliness, the Fifth Circuit declined to extend its prior unpublished opinion.   The Court dismissed the appeal as moot, stating, "this court simply cannot enjoin that which has already taken place."

Khan v. Xenon Health, LLC (In re Xenon Anesthesia of Texas, PLLC), 698 Fed. Appx. 793 (5th Cir. 10/16/17)(unpublished)

Xenon Anesthesia of Texas, PLLC ("Xenon Texas") filed chapter 7 bankruptcy.   Khan and Xenon Health, LLC ("Xenon Health") each filed claims.   Khan objected to Xenon Health's proof of claim.  Khan was previously a member of Xenon Texas.   However, he was compelled to transfer his interest to another party in state court proceedings.   After he was compelled to transfer his membership interest, he withdrew his proof of claim.

The Bankruptcy Court found that because Khan was not an owner of the Debtor and had withdrawn his proof of claim, he was not a party in interest who was entitled to object to a claim.   The Fifth Circuit affirmed.   

 Tow v. Bulmahn (Matter of ATP Oil & Gas Corp.),  Case No. 17-30077 (5th Cir. 10/27/17)(unpublished)

Trustee brought claims against Debtor's officers and directors for approving preferred stock dividends on the eve of bankruptcy and approving certain bonuses.    The District Court dismissed.   The Fifth Circuit affirmed.    It was not enough to say that directors collectively approved dividends.  It was necessary to show which ones voted in favor.  Additionally, it was not sufficient to allege that dividends harmed the company's long term viability without additional explanation.   Bonus claims were also dismissed due to failure to adequately allege why bonuses were excessive.

The Fifth Circuit also affirmed the ruling dismissing claims against the officers and directors who received the bonuses.  It quoted a New Hampshire Bankruptcy Court decision which stated that "Bad business decisions without more cannot form the basis for a fraudulent conveyance action seeking recovery of compensation paid to an officer or a director."    

The Fifth Circuit also affirmed the dismissal of related conspiracy claims and denial of leave to amend after the Second and Third Amended Complaints.

Garner v. Pillar Life Settlement Fund I, LP (Matter of Life Partners, Inc.),  Case No. 16-11436  (5th Cir. 11/29/17)(unpublished)

Life Partners, Inc. sold undivided interests in life insurance policies that were found to be securities.  The company filed chapter 11 and a trustee was appointed.   Two different groups of investors filed adversary proceedings seeking class action status.   The class actions were consolidated and the reference was withdrawn to the District Court.   The Trustee and the named Plaintiffs  sought to certify a class for settlement purposes.   The District Court referred the matter to the Bankruptcy Court which conducted a hearing and recommended approval of the settlement.  The District Court approved the settlement.   A group of investors appealed approval of the class action settlement.   Meanwhile, Life Partners confirmed a plan which incorporated the settlement.     The objecting investors did not appeal plan confirmation and the plan was substantially consummated.    The Fifth Circuit found that it could not grant any effectual relief based on appeal of only the Settlement Agreement.   As a result, it dismissed the appeal as moot.

Haler v. Boyington Capital Group, LLC (In re Haler), 2017 U.S. App. LEXIS 27034 (5th Cir. 12/29/17)(unpublished)

The Debtor, Randall Lee Haler, was Executive Vice-President of McKinney Aerospace, L.P., a company that repaired and refurbished business jets.  Haler told Boyington, a customer of McKinney Aerospace, that McKinney was in "very fine legally financial shape" and had plenty of cash.  Apparently the company was not in very fine financial shape because when Boyington cancelled the contract, the company was unable to refund the unused portion of the funds obtained.   Boyington sued in state court and obtained a fraud judgment against Haler for $258,000.    

When Haler filed for chapter 7 bankruptcy, Boyington sued to obtain a non-dischargeable judgment under 11 U.S.C. Sec. 523(a)(2)(A).  The Bankruptcy Court granted summary judgment based on the state court judgment and the District Court affirmed.  The Fifth Circuit reversed.  A non-dischargeable judgment under 11 U.S.C. Sec. 523(a)(2)(A) cannot be based on a statement respecting the debtor or an insider's "financial condition."   Under 11 U.S.C. Sec. 523(a)(2)(B), a non-dischargeable debt can be based on a written statement of financial condition.   The intersection of these two subsections means that oral statements of financial condition can never result in a non-dischargeable debt.

The Fifth Circuit found that Haler's statements were made concerning McKinney's financial condition and therefore could not result in a non-dischargeable judgment.   The Fifth Circuit reversed the lower courts.