Texas Judge Says You Don't Have to Act Rashly to Value a Truck

Western District of Texas Bankruptcy Judge Tony Davis has written a very helpful opinion on valuing a truck in a chapter 13 case.   The ten page opinion is packed with extensive footnotes as well as practical guidelines.   In the end, the valuation issue depended on burden of proof and the relatively weak evidence offered by the debtor prevailed.    In re Solis, No. 15-11181 (Bankr. W.D. Tex. 4/15/16).    The opinion can be found here .

Pre-Packaged Plan Clears Confirmation in Fifteen Days

Shakespeare bemoaned "the law's delay."   Dickens brought us Jarndyce v. Jarndyce, a case spanning generations.   However, a new Chapter 11 case  filed in Corpus Christi demonstrated the opposite of delay, blazing from petition to confirmation in just fifteen days.    Case No. 16-20111, In re Southcross Holdings, LP (Bankr. S.D. Tex. 2016).     The case is all the more remarkable because it involved an energy sector debtor that did not rely on a section 363 sale, but actually raised new capital and restructured its debts.     

About the Debtors

The Southcross entities consist of two halves of a broad, interconnected enterprise providing services across the midstream oil and gas sector.   The Debtor entities, which are shown in blue in the chart below comprise the holding company portion of the corporate structure, while the non-debtor affiliates, shown in salmon below, carry out the operations.    The Debtors own a 2% general partner interest and a 60% limited partnership interest in Southcross Energy Partners, LP, a publicly traded master limited partnership (MLP).    

Southcross owns and operates approximately 4,000 miles of pipelines, two sour gas treating facilities, three processing facilities, two fractionating facilities, and one facility with both processing and fractionating capabilities. The Southcross assets that are owned by the Debtors are located in the Eagle Ford shale in South Texas (the “Eagle Ford”) and include approximately 880 miles of natural gas gathering and NGL transportation pipeline, one sour gas treating facility, and one fractionating facility.

Declaration of Jeffery J. Stegenga, p. 3,  Dkt. No. 8.

A Story of Student Loan Hell

Occasionally I receive emails from people who have read the blog wanting to share their stories or objecting to what I wrote about their case.    They are a poignant reminder that the legal issues we deal with affect real people.   When I write about a case, I am writing about the facts as found by the Court.   The story that comes out of the official court record may be very different from how the individuals involved saw it.   Today I received an email from a woman who offered to share her story about her 30 year ordeal with student loans.   I am reprinting it below as received except that I explained some of the abbreviations she used.  While I can't vouch for the accuracy of the account, I do believe that she is describing how it looks to her.   Here is a story of student loan hell from Florida:

Dear Bankruptcy Attorney:

 
I'm in Florida but all bankruptcies are thru the Federal court system.  I have old student loans (taken out 1981-1983) for a total of $8,000 at 9% interest ($720 per year for 10 years) thru the GSL program (which was not Stafford at the time).  The promissory note (“PN”) said the Department of Education (“DOE”), my bank and I had to be in agreement if the note was to be changed.  The PN said (on the back) that the loans even if not repaid in full should not go past 15 years in repayment.

Cases Demonstrate Multiple Ways to Leave Chapter 7

Paul Simon once said that there must be fifty ways to leave your lover.   Two recent cases show that as with failed romances, there are multiple ways to leave chapter 7.     In Torres v. Krueger (Matter of Krueger), No. 14-11135 (5^th Cir. 1/19/16), the Fifth Circuit dismissed a chapter 7 case for “cause” under 11 U.S.C. §707(a), while in In re Karlinger-Smith, No. 15-10214 (Bankr. W.D. Tex. 1/26/16), Judge Tony Davis found that he could have involuntarily converted an individual debtor to chapter 11 but declined to do so. These cases illustrate the variety of ways in which a case filed under chapter 7 can leave that chapter. The opinions can be found here and here.

Creative Lawyers Thwarted in ASARCO Workaround Attempts

One of the panels at the recent Fifth Circuit Bench-Bar Conference featured Judge Craig Gargotta and Stephen Rosenblatt discussing fee issues raised by Barron & Newburger, P.C. v. Texas Skyline, Ltd. and Baker Botts v. ASARCO.  While I was personally interested in hearing the discussion about my own case, the really interesting part involved what creative lawyers are doing to try to work around the ASARCO decision.    

In the ASARCO case, the reorganized debtor caused Baker Botts to spend about $5 million in attorney time defending its fee application.  Both the Fifth Circuit and the Supreme Court ruled that these services were not compensable because the American Rule provides that parties must bear their own fees absent a statute or contract and 11 U.S.C. Sec. 330 did not allow fees for defending a fee application.    Thus, Baker Botts had to eat the cost of establishing its entitlement to fees in one of the most extraordinarily successful cases of all time.

This has left some creative lawyers wondering how they can protect themselves from the expense of a costly fee battle.    However, two recent decisions from the Bankruptcy Court for the District of Delaware have thrown cold water on these attempts.

Fifth Circuit Report: Oct.-Dec. 2015

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.  

Movie References Abound in Opinion Denying Fees to Alleged Debtor

With the Academy Awards just a week away, one Texas judge has demonstrated his love of film in an opinion chock full of movie references.    The opinion is also a helpful guide to recovery of attorneys' fees under 11 U.S.C. Sec. 303(i).   In re Clean Fuel Technologies II, LLC, No. 15-30827 (Bankr. W.D. Tex. 2/4/16), which can be found here. 

The Court set the tone for the opinion in the opening paragraphs:

This case involves an unsuccessful Involuntary Petition filed under Chapter 7 of the Bankruptcy Code against an alleged debtor. The Court previously dismissed the Involuntary Petition, finding that the petitioning creditors did not meet the eligibility requirements established by statute and recent Fifth Circuit precedent. Now, The Empire Strikes Back through a Counterclaim—the alleged debtor seeks recovery of attorney’s fees and costs against the unsuccessful petitioning creditors under § 303(i) of the Bankruptcy Code.

The Court finds that, upon dismissal of an involuntary petition, a presumption arises in favor of awarding attorneys’ fees and costs to the alleged debtor. In this case, however, the Court determines, based on the totality of the circumstances, the presumption of an award of attorneys’ fees and costs to the alleged debtor has been overcome. As a result, the petitioning creditors in this case have dodged a Bullitt and the Counterclaim filed by this alleged debtor must be denied.

Opinion, p. 1.   The helpful footnotes explain that The Empire Strikes Back was released by Lucasfilm in 1980 and earned an Academy Award for Best Sound, while Bullitt was released by Warner Brothers in 1968 and earned the Academy Award for Best Film Editing.    

Let's Be Careful Out There: The Danger of Omitting Assets

Filing bankruptcy is serious business.    The mere act of filing a petition creates an automatic stay effective against all entities.    Liens can be modified, taxes can be paid out and debts can be discharged.   The price of admission for getting all these benefits is full disclosure.   Unfortunately some debtors either don't understand these obligations or think they can selectively disclose only the assets they want to list.   The consequences for omitting assets can be severe as illustrated by two recent opinions from the Fifth Circuit and a press release from the Acting U.S. Attorney for the Southern District of Illinois.

Current Developments in Texas Homestead Law

            For this post, I attempted to find every Texas case dealing with a homestead exemption during the period between 2010 and 2015.     Many more cases interpreting the Texas constitutional and statutory laws on homesteads are decided in bankruptcy courts than in reported state court opinions.
 

Second Western District Judge Finds Proceeds From Post-Petition Sale Can't Be Clawed Back in Chapter 7

After sorting through conflicting precedents, Judge Craig Gargotta has ruled that a chapter 7 debtor who owned a homestead property on the date of bankruptcy and claimed the property as exempt did not lose the exemption when the property was sold and proceeds were not reinvested within six months.    Lowe v. DeBerry (In re Deberry), Adv. No. 15-5054 (Bankr. W.D. Tex. 10/28/15).

Fifth Circuit Report: August-September 2015

The summer months have been slow at the Fifth Circuit.   August and September's opinions include an update on a prior opinion about abstention related to a chapter 15, judicial estoppel, mootness of an appeal of a sale order, a motion to compromise, removal of a trustee, recognition of a foreign judgment and issues relating to a homestead.
 

After Woerner, Courts Look for "Good Gambles"

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
--Kenny Rogers, The Gambler

After the Fifth Circuit’s opinion in Barron & Newburger, P.C. v. Texas Skyline Ltd. (Matter of Woerner), 783 F.3d 286 (5^th Cir. 2015), lawyers for bankruptcy estates breathed a sigh of relief, knowing that they could still be compensated for “good gambles” gone awry.   However, how would the courts measure a “good gamble” in the context of a case that didn’t quite work out?   Two decisions issued on the same day help answer that question.    In Case No. 13-33264, Digerati Technologies, Inc. (Bankr. S.D. Tex. 8/21/15), a highly contentious case resulted in a confirmed plan but only after an initial plan proposed by management was rejected.   In Case No. 10-11365, In re Woerner(Bankr. W.D. Tex. 8/21/15), the Bankruptcy Court that ruled in the case that was eventually reversed by the en banc Fifth Circuit reconsidered its ruling following remand.   In both cases, debtor’s counsel received some but not all of the fees requested.

Texas Judges Explore State Law on Liens and Homestead Exemptions

Much state law regarding liens and property rights emerges from the Bankruptcy Courts because they are frequently the first to confront novel issues.   Two recent opinions from the Western District of Texas bankruptcy judges confirm this trend.   In one case, Judge Tony Davis found that an option to acquire a leased homestead could be claimed as exempt, No. 14-11006, James Wayne See (Bankr. W.D. Tex. 7/14/15), while in the other, Chief Judge Ronald King rejected an attempt to void a judgment creditors' lien under the Texas Property Code, Studensky v. Buttery Company, LLP,  Adv. No. 15-6001 (Bankr. W.D. Tex. 7/2/15).

Fifth Circuit Report: June 2015

This month's Fifth Circuit report doesn't have a lot of bankruptcy sizzle:  an interesting case on abstention and remand,  two unpublished cases about how not to reserve a claim under a plan and a case about suing a trustee.   However, there are some fascinating cases about lenders, liens, fraudulent transfers, the Texas Debt Collection Act and the Fair Debt Collection Practices Act.    The big news here is that the Fifth Circuit vacated its Golf Channel decision and instead certified the question to the Texas Supreme Court.   Here are June's decisions.   (Click on the style of the case to go to the actual opinions).

  

Supreme Court Says Lawyers Don't Get Paid for Defending Their Fees

A Texas law firm did a great job and beat back a punitive attack on their fees.   However, the Supreme Court has ruled that they may not receive compensation for defending their work.   Baker Botts, LLP v. ASARCO, LLC, No. 14-103 (6/15/15).

Introduction

I have previously talked about the case here.   As a result, I will just give the Cliff's Notes version of the facts.  Baker Botts delivered remarkable results in their representation of ASARCO, LLC.   However, when the party they had sued gained control of the Debtor, they faced a withering attack on their fees.   In response to discovery requests, they produced 2,350 boxes of documents and 189 GB of electronic data.    The trial on their fees took six days.   All of this defense did not come cheap.   The firm spent $5 million of time litigating their fees.     

Sale Watch: Esco Marine, Inc.

Case No. 15-20107; Esco Marine, Inc.; Southern District of Texas, Corpus Christi Division

Bidding Procedures Order:   Dkt. #260; 6/26/15

Assets to be Sold:    Assets of Debtors other than Chapter 5 causes of action, claims against insiders, unscheduled or undisclosed assets, cash

Sale Watch: WBH Energy, Ltd.

This is a new feature on A Texas Bankruptcy Lawyers Blog.   Whenever I hear about Section 363 sales in Texas, I will mention them here to try to get the word out.   Please feel free to send me any sales you are involved in or happen to hear about.

Case No. 15-10003; WBH Energy, Ltd.; Western District of Texas, Austin Division

Bidding Procedures Order:    Dkt. #361; 5/11/15

Assets to be Sold:   Oil and gas interests in the Barnett Combo Play of the Fort Worth Basin

Fifth Circuit Report: April-May 2015

At the same time that the Supreme Court was busy ruling upon its bankruptcy cases for the term, the Fifth Circuit was active as well.  There were so many cases in April, that it took me two months to summarize them.    Over the course of April and May, the Court decided no less than sixteen cases with bankruptcy implications.   These include cases relating to civil contempt, post-judgment remedies being granted pre-judgment, the conclusion of the BPRE case and important opinions on property of the estate, attorney’s fees, discharge and dischargeability.  There are also four cases involving disputes between homeowners and lenders, including two where the homeowner’s claim was revived on appeal.   There is enough substance here, including in the unpublished opinions, to keep a lot of lawyers and judges reading for a long time.

Supreme Court Extends Dewsnup But Suggests They Really Don't Care for the Decision

The Supreme Court extended the holding of Dewsnup v. Timm, 502 U.S. 410 (1992) to a fully unsecured junior lien in a chapter 7 case.    However, the Court suggested in a footnote that they are ready to reconsider the underlying precedent.    This suggests that the Petitioners may have lost because they were not bold enough in challenging Dewsnup.   Bank of America v. Caulkett, No. 13-1421 (6/1/15). 

Fifth Circuit Narrows Fraud Dischargeability Claims

Rejecting a Seventh Circuit precedent, the Fifth Circuit has ruled that a non-dischargeability claim under section 523(a)(2)(A) must be based upon a false representation.    While bad conduct that does not involve a misrepresentation may be actionable under other sections of the Code, it will not constitute actual fraud under Sec. 523(a)(2)(A).   Husky International Electronics, Incorporated v. Ritz (Matter of Ritz), No. 14-20526 (5th Cir. 5/22/15).