Kreit v. Quinn ( 2022 )

Case: 21-20067 Document: 00516199696 Page: 1 Date Filed: 02/11/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
February 11, 2022
No. 21-20067 Lyle W. Cayce
Clerk
In re Cleveland Imaging and Surgical Hospital, L.L.C.,
Debtor.
Camil Kreit; Samir Kreit; Fadi Ghanem,
Appellants,
versus
Christopher L. Quinn, the CI Litigation Trustee,
Appellee.
Appeal from the United States District Court
for the Southern District of Texas
No. 4:19-CV-3069
Before Higginbotham, Smith, and Ho, Circuit Judges.
Jerry E. Smith, Circuit Judge:
This case arises from the bankruptcy of Cleveland Imaging and Surgi-
cal Hospital, L.L.C. (“CISH”), which, starting in 2002, owned and operated
a four-bed hospital in Cleveland, Texas. Camil Kreit, Samir Kreit, and Fadi
Ghanem are doctors who invested in CISH and served on its board.
In 2014, CISH filed for bankruptcy. Many of its assets were sold, but
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its causes of action were placed in trust so they could be liquidated on behalf
of its creditors. For that purpose, Christopher Quinn was appointed trustee.
In 2019, however, the doctors filed an adversary proceeding in which
they asserted causes of action that the bankruptcy court had placed in trust
for CISH’s creditors. That led the bankruptcy court to sanction them, con-
cluding that by attempting to seize control of trust property, the doctors had
knowingly violated its order confirming the liquidation plan. The doctors
appealed, but those sanctions were largely upheld by the district court. The
doctors again appeal. Because every issue they raise is meritless, we affirm.
I.
A.
Understanding the sanctions order at issue here requires a bit of back-
ground on the CISH bankruptcy. In 2012, the doctors sued CISH for breach
of contract in state court. When one of CISH’s creditors learned that the
hospital had ceased operations on account of the suit, the creditor success-
fully petitioned a state court to appoint a receiver, who then put CISH into
bankruptcy in September 2014.
In subsequent bankruptcy proceedings, the doctors competed with
one of their rivals on the CISH board to purchase the hospital from CISH’s
estate. Ultimately, the bankruptcy court approved a sale of the hospital to
that rival in August 2015. The doctors objected but did not appeal.
Two months later, however, Camil Kreit wrote to numerous govern-
mental entities 1 to allege that the receiver and the doctors’ rival had rigged
the asset sale and taken actions to injure CISH. In those communications,
1
In all, Kreit contacted the U.S. Trustee’s Office, the local U.S. Attorney’s Office,
the Texas Attorney General’s Office, the U.S. Department of Justice, and the Federal
Trade Commission.
2
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Kreit identified himself as one of CISH’s managers, raised various causes of
action on its behalf, and requested any available administrative remedies.
When the bankruptcy court learned of Kreit’s actions, it sanctioned him. It
reasoned that Kreit had sought to assert control over causes of action that
properly belonged to CISH and that that violated the automatic stay, which
prohibits “any act . . . to exercise control over property of the estate.”
11 U.S.C. § 362(a)(3). Kreit appealed, but we upheld those sanctions. Kreit
v. Quinn (In re Cleveland Imaging & Surgical Hosp., L.L.C.), 690 F. App’x
283, 287 (5th Cir. 2017) (per curiam). 2
Meanwhile, in June 2016, the bankruptcy court confirmed a liquida-
tion plan for CISH. As before, the doctors objected but did not appeal. As
part of that plan, CISH’s remaining assets—including its causes of action—
were placed into the CI Litigation Trust. Quinn was appointed trustee to
pursue those claims and liquidate them on behalf of the creditors.
Two aspects of the plan are notable. First, it kept the automatic stay
in place for the benefit of the trust. Second, it provided that the trust would
terminate automatically on December 31, 2018.
B.
That brings us to this appeal. In June 2019, the doctors filed an adver-
sary proceeding in the bankruptcy court against CISH’s estate and another
one of their rivals. They alleged that their rival had defrauded CISH before
the bankruptcy filing and that the receiver 3 had breached his fiduciary duties
by failing adequately to pursue claims that could serve to recover assets for
2
Kreit’s petition for certiorari was denied. See Kreit v. Quinn, 138 S. Ct. 429(2017).
3
Although the doctors did not sue the receiver, their attorney later admitted that
was a mistake.
3
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CISH. The bankruptcy court responded by ordering the doctors to show
cause why they should not be sanctioned for violating the automatic stay kept
in place by its confirmation order.
After holding two hearings, the bankruptcy court decided to sanction
the doctors using its inherent power under Section 105 of the Bankruptcy
Code. 4 It concluded that the doctors had brought causes of action that prop-
erly belonged to the trust. Accordingly, the bankruptcy court determined
that they had attempted to assert control over trust property—thereby violat-
ing the automatic stay kept in place by its confirmation order. As required to
exercise its inherent authority, 5 the court also found, by clear and convincing
evidence, that the doctors had acted in bad faith. That finding was driven by
its conclusion that the doctors had knowingly violated its confirmation
order. 6
The bankruptcy court then imposed two categories of sanctions.
First, it ordered the doctors to pay for the costs that the trust had incurred as
a result of their adversary—namely, the fees that Quinn and his attorneys had
charged it for responding to the adversary and litigating the show-cause
motion. 7 Second, it enjoined the doctors from violating the automatic stay in
4
That section gives bankruptcy courts the power to “issue any order, process, or
judgment that is necessary or appropriate to carry out the provisions” of the Bankruptcy
Code. 11 U.S.C. § 105(a).
5
Cadle Co. v. Moore (In re Moore), 739 F.3d 724, 729–30 (5th Cir. 2014).
6
In particular, the bankruptcy court emphasized that the doctors knew about the
confirmation order and had been rejected by multiple attorneys before finding one who was
willing to file their complaint. It also noted that it had previously sanctioned Camil Kreit
for engaging in similar conduct.
7
On the bankruptcy court’s instructions, Quinn had moved for the court to use its
inherent authority to order the doctors to show cause why they should not be sanctioned.
He then prosecuted the show-cause motion. Under the confirmation order and trust agree-
ment, the trust was obligated to pay the fees incurred by Quinn and his attorneys in defend-
4
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the future. That injunction was to be enforced with future sanctions of
$100,000 per individual per violation. Then, in a separate order, the bank-
ruptcy court dismissed the doctors’ adversary proceeding with prejudice.
The doctors paid the monetary sanctions to Quinn, who accepted
them on behalf of the trust. 8 Then, they appealed the sanctions order to the
district court, which affirmed in part and vacated in part. As relevant here,
it affirmed the monetary sanctions because it agreed with the bankruptcy
court’s determination that the doctors had violated the automatic stay in bad
faith. But it vacated the “$100,000 sanction for future violations” as “puni-
tive and beyond the bankruptcy court’s authority.” 9
Once again, the doctors appealed. Quinn, however, did not cross-
appeal the vacatur of the punitive sanctions.
II.
“We review ‘the decision of a district court sitting as an appellate
court in a bankruptcy case by applying the same standards of review to the
bankruptcy court’s findings of fact and conclusions of law as applied by the
district court.’” 10 That means we usually review the bankruptcy court’s
ing its interests.
8
The doctors paid the sanctions to Quinn, not the trust itself, because a trust is not
a “separate legal entity” under Texas law. Hollis v. Lynch, 827 F.3d 436, 443 (5th Cir.
2016) (quoting Ray Malooly Tr. v. Juhl, 186 S.W.3d 568, 570 (Tex. 2006)). Instead, a trust
is merely a “fiduciary relationship governing the trustee with respect to the trust prop-
erty.” Id. (quoting Juhl, 186 S.W.3d at 570). As a result, it is the trustee who has possession
of a trust’s property. See id. (“A trust cannot possess anything as it is not an entity under
Texas law.”).
9
Bankruptcy courts lack the power to impose sanctions so punitive that they
amount to a finding of criminal contempt. Griffith v. Oles (In re Hipp, Inc.), 895 F.2d 1503,
1509 (5th Cir. 1990).
10
In re Lopez, 897 F.3d 663, 668 (5th Cir. 2018) (quoting Endeavor Energy Res., L.P.
v. Heritage Consol., L.L.C. (In re Heritage Consol., L.L.C.), 765 F.3d 507, 510 (5th Cir.
5
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legal conclusions de novo and its factual findings for clear error. Edwards Fam.
P’ship v. Johnson (In re Cmty. Home Fin. Servs., Inc.), 990 F.3d 422, 426 (5th
Cir. 2021). But when the bankruptcy court sanctions a party using its inher-
ent authority, our review is closer. We uphold those sanctions only if (1) the
bankruptcy court finds that the party acted in bad faith or willfully abused the
judicial process and (2) its finding is supported by clear and convincing evi-
dence. In re Moore, 739 F.3d at 729–30.
III.
Before we can get to the merits, we must confirm we have jurisdiction.
Rivero v. Fid. Invs., Inc., 1 F.4th 340, 343 (5th Cir. 2021). It turns out that we
have jurisdiction over some—but not all—of the doctors’ claims.
A.
We start with the dismissal of the doctors’ adversary proceeding. On
appeal, the doctors say that the bankruptcy court was wrong to dismiss their
adversary proceeding; they ask us to reinstate it. But they never filed a notice
of appeal that properly embraced that issue under the bankruptcy rules, and
that means we don’t have jurisdiction. Dorsey v. U.S. Dep’t of Educ. (In re
Dorsey), 870 F.3d 359, 363 (5th Cir. 2017).
The bankruptcy court dismissed the doctors’ adversary and sanc-
tioned them in two separate orders. It entered the dismissal order on the
docket for the doctors’ adversary proceeding, but it entered the sanctions
order on the docket for the underlying Cleveland Imaging bankruptcy pro-
ceeding. In response, the doctors filed only a single notice of appeal on the
Cleveland Imaging docket. That notice designated only the sanctions order as
the subject of the appeal. And as an exhibit, the doctors attached only the
2014)).
6
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sanctions order, not the dismissal order. There are two reasons why that
notice of appeal didn’t encompass the dismissal order and, accordingly, why
we don’t have jurisdiction.
First, a “notice of appeal in [a] main bankruptcy proceeding” cannot
“serve as a notice of appeal in [a related] adversary proceeding.” Dorsey,
870 F.3d at 362. Instead, the “main bankruptcy case and adversary proceed-
ing must be treated as distinct for the purpose of appeal.” Id. at 363 (quoting
Dietrich v. Tiernan (In re Dietrich), 490 F. App’x 802, 804 (6th Cir. 2012)).
After all, “adversary proceedings are discrete judicial units.” Id. Given that
the doctors didn’t file a notice of appeal on the adversary docket, their notice
didn’t embrace the dismissal of their adversary proceeding. Thus, we lack
jurisdiction.
Second, the doctors’ notice of appeal did not comply with the require-
ments of the bankruptcy rules for appealing the adversary proceeding. Notic-
ing an appeal from a bankruptcy court is “more demanding” than noticing
an appeal from a district court. Fadayiro v. Ameriquest Mortg. Co., 371 F.3d
920, 922 (7th Cir. 2004). 11 Unlike the latter, the former requires that a notice
of appeal “be accompanied by the judgment, order, or decree, or the part of
it, being appealed.” Fed. R. Bankr. P. 8003(a)(3)(B). And the doctors
included only the sanctions order, not the dismissal order, with their notice
of appeal. That means their notice failed to comply with Rule 8003, so we
lack jurisdiction.
B.
Next, the punitive sanctions. The doctors once again press their claim
that the forward-looking sanctions were punitive and beyond the authority of
11
That’s likely because a single bankruptcy case can involve many parties and many
adjacent adversary proceedings. Fadayiro, 371 F.3d at 922.
7
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the bankruptcy court. But they won on this issue before the district court, and
Quinn did not cross-appeal. “[A] prevailing party generally may not appeal
a judgment in its favor.” 12 Such a party may do so when it continues to suffer
an injury from the judgment. See Camreta v. Greene, 563 U.S. 692, 702–03
(2011). But the doctors have already received everything they wanted with
respect to the punitive sanctions; they fail to identify any additional injury
they have suffered from the district court’s judgment. Thus, they don’t have
an injury-in-fact, and we don’t have jurisdiction. See id. at 701–02.
C.
We end our discussion of jurisdiction with a relatively unusual issue.
Recall that the terms of the trust agreement stated it would terminate no later
than December 31, 2018—six months before the doctors filed their adversary
proceeding and eight months before Quinn and his attorneys accepted the
sanctions award on behalf of the trust. It appears that the doctors figured this
out just after briefing had been completed. Several weeks later, they filed an
emergency motion to strike Quinn’s filings, set aside his actions since 2018,
and vacate the district court’s order affirming the sanctions order. They
claimed that Quinn didn’t have standing to defend the sanctions order
because he was no longer a trustee and therefore had no interest in preserving
it. In supplemental briefing, they also claimed that Quinn didn’t have stand-
ing to file or prosecute the show-cause motion despite the bankruptcy court’s
request for him to do so.
Making matters more complicated, the doctors filed a similar motion
on the underlying bankruptcy court docket around the same time. Then,
before we heard oral argument, the bankruptcy court ruled on that motion.
12
Zente v. Credit Mgmt., L.P., 789 F.3d 601, 603–04 (5th Cir. 2015) (quoting Ward
v. Santa Fe Indep. Sch. Dist., 393 F.3d 599, 603 (5th Cir. 2004)).
8
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It agreed with the doctors that the trust had “terminated as a matter of law”
in 2018. And although Quinn continues to possess the trust assets, 13 the
bankruptcy court held that the terms of the trust prohibit him from exercising
wind-up powers after its termination. Those powers would have let Quinn
continue to exercise his powers as trustee for a reasonable time until he dis-
tributed the trust assets to beneficiaries. Tex. Prop. Code § 112.052.
The upshot of all this is that the doctors hope it will lead us to vacate
the sanctions order and dismiss this appeal for lack of jurisdiction. After all,
standing implicates our subject-matter jurisdiction. Ortiz v. Am. Airlines,
Inc., 5 F.4th 622, 627 (5th Cir. 2021). And though it would have been prefer-
able for the doctors to raise these issues before, we have an obligation to
assure ourselves of our jurisdiction. Rivero, 1 F.4th at 343–44. Even so, we
conclude that the bankruptcy court had jurisdiction to enter the sanctions
order and that we and the district court have jurisdiction to hear this appeal.
Let’s start with the sanctions order. The bankruptcy court entered it
under its inherent authority under 11 U.S.C. § 105(a), 14 which gives bank-
ruptcy courts the power to issue civil contempt orders. See Placid Refin. Co.
v. Terrebonne Fuel & Lube, Inc. (In re Terrebonne Fuel & Lube, Inc.), 108 F.3d
609, 613 (5th Cir. 1997) (per curiam). Because the sanctions order sought to
“compensate another party for the contemnor’s violation” of a court order,
it qualifies as such an order. Id. That matters because “an order of civil
contempt is considered part of the underlying case”—here, the Cleveland
Imaging bankruptcy case. Garrett v. Coventry II DDR/Trademark Montgomery
Farm, L.P. (In re White-Robinson), 777 F.3d 792, 795 (5th Cir. 2015) (per
13
They are in a bank account he controls.
14
In relevant part, Section 105(a) provides that bankruptcy courts may “sua
sponte, tak[e] any action . . . necessary or appropriate to enforce or implement court orders
or rules, or to prevent an abuse of process.”
9
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curiam). Therefore, because the bankruptcy court had jurisdiction over the
Cleveland Imaging bankruptcy case, it had jurisdiction to enter the sanctions
order, too.
Likewise, we have (and the district court had) jurisdiction to consider
the doctors’ appeal. The doctors say that Quinn doesn’t have standing to
defend their appeal. The problem with that theory is that standing isn’t the
right doctrine by which to articulate their objection to Quinn’s status as a
party. A litigant must be able to show standing when “seek[ing] to initiate or
continue proceedings in federal court.” 15 Quinn is seeking to defend an appeal
initiated by the doctors. Thus, for this case to be capable of resolution under
Article III, he doesn’t need to show he would have standing.
Nonetheless, Article III requires an “opposing party” to have “an
‘ongoing interest in the dispute’ . . . that is sufficient to establish ‘concrete
adverseness’” between the litigants. Bond, 564 U.S. at 217 (quoting Camreta,
563 U.S. at 701). Normally, this requirement is hardly worth mentioning.
After all, a litigant unquestionably has an interest in a case when there is
“relief being sought at its expense” by another. Id. And standing’s tracea-
bility and redressability requirements will typically guarantee that that’s the
case. Hence, nothing is usually lost when courts say that Article III’s
requirement of a “genuine, live dispute between adverse parties” is
“implement[ed]” through the “doctrine of standing.” Carney v. Adams, 141
S. Ct. 493, 498 (2020).
Here, the doctors have standing to appeal the sanctions order. Their
injury—being forced to pay over $40,000 in sanctions—is a “traditional
15
Bond v. United States, 564 U.S. 211, 217 (2011) (emphasis added); see also Va.
House of Delegates v. Bethune-Hill, 139 S. Ct. 1945, 1950 (2019) (noting that standing is
required for those “invoking the power of a federal court” (emphasis added) (quoting Hol-
lingsworth v. Perry, 570 U.S. 693, 704 (2013))).
10
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tangible harm[ ]” that meets the injury-in-fact requirements of Article III.
TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2204 (2021). That injury is
“fairly traceable” to Quinn’s conduct in accepting the sanctions award on
behalf of the trust. Carney, 141 S. Ct. at 498 (quoting Hollingsworth, 570 U.S.
at 704). And this injury could be “redressed by judicial relief.” TransUnion,
141 S. Ct. at 2203. If the bankruptcy court wrongly sanctioned the doctors,
this court could order the sanctions returned from their possessor (Quinn) to
their rightful owner (the doctors)
Even so, sometimes an opposing party lacks such an interest even
when an initiating party can show it has standing. Look no further than Cam-
reta, 563 U.S. at 701–03, in which the Court concluded that a child protective
service worker who had received qualified immunity nonetheless had stand-
ing to appeal. The Ninth Circuit held that he had violated the Fourth
Amendment by interviewing a minor at school without a warrant or her par-
ents’ consent; it then concluded that he was entitled to qualified immunity
because that right was not “clearly established.” Id. at 699–700. That in-
jured the worker by establishing an “adverse constitutional ruling” that
required him to “change the way he performs his duties or risk a meritorious
damages action.” Id. at 703.
Nonetheless, the Supreme Court ultimately concluded that it didn’t
have jurisdiction. Why? Because for a federal court to exercise jurisdiction
under Article III “the opposing party also must have an ongoing interest in
the dispute.” Id. at 701 (emphasis added). In Camreta, the minor had moved
to Florida and was “only months away from her 18th birthday” and “high
school graduation.” Id. at 711. As a result, she no longer had an interest in
preserving the Ninth Circuit’s constitutional holding. Id. That lack of “a
stake in the outcome” meant that there was no longer a live controversy for
the Court to resolve. Id. at 710–11.
11
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Quinn, however, still has a “stake in the outcome” that is adequate to
confer our jurisdiction despite the termination of the trust. True, Quinn no
longer has legal ownership of the trust assets. Nonetheless, as even the doc-
tors recognized at oral argument, the assets are still in a bank account that he
controls.
Quinn has a cognizable interest in continuing to possess the assets. On
termination, a former trustee like Quinn has a duty to return the trust prop-
erty to the beneficiaries of the trust. 16 And a former trustee’s fiduciary duty
with respect to that property doesn’t end until the property has been distrib-
uted to beneficiaries. 76 Am. Jur. 2d Trusts § 335, Westlaw (database up-
dated Nov. 2021). Thus, even though Quinn may lack wind-up powers and
doesn’t have legal ownership of the property, he has an interest in defending
his continued possession of the trust assets so he can fulfill his fiduciary
duties and return the property to the trust beneficiaries. 17 That’s enough to
give him a meaningful interest in this case, so we have jurisdiction.
IV.
That brings us finally to the merits. The doctors’ remaining claims
have none.
A.
The doctors say that the bankruptcy court erred in finding they had
violated its confirmation order by filing their adversary proceeding. That
court reached that conclusion because its confirmation order preserved the
16
Restatement (Third) of Trusts § 76 (Am. L. Inst.), Westlaw (database
updated Oct. 2021); cf. Tex. Prop. Code § 114.001(a) (“The trustee is accountable to
a beneficiary for the trust property . . . .”).
17
In its amended order on termination of the trust, the bankruptcy court indicated
that Quinn may request its guidance for distributing the trust property, but he does not yet
appear to have done so.
12
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automatic stay, which prevents “any act . . . to exercise control over property
of the estate.” 11 U.S.C. § 362(a)(3). In the court’s view, the doctors’ filing
violated that provision by attempting to “tak[e] control over assets of the
estate which [had] bec[o]me assets of the trust.” The doctors dispute this
holding on two grounds, but neither is persuasive.
First, the doctors claim the automatic stay permitted adversary pro-
ceedings like theirs to be filed. They highlight language from Campbell v.
Countrywide Home Loans, Inc., 545 F.3d 348, 356 (5th Cir. 2008), that they
insist reveals that filing an adversary proceeding does not violate the auto-
matic stay. 18 But as we later clarified, “[w]hile the language in Campbell
could suggest a broad rule, the holding was narrow: the automatic stay does
not bar the filing of proofs of claims in the debtor’s bankruptcy case.” Cowin
v. Countrywide Home Loans, Inc. (In re Cowin), 864 F.3d 344, 352 (5th Cir.
2017) (emphasis added). That’s because the Bankruptcy Code explicitly
permits such actions to be filed against a debtor. See 11 U.S.C. § 501(a).
The doctors haven’t cited a comparable textual exception for their
adversary proceeding, which—unlike a proof of claim—undermined the
“orderly liquidation [and] administration of the estate.” Cowin, 864 F.3d
at 352 (quoting Prewitt v. N. Coast Vill., Ltd. (In re N. Coast Vill., Ltd.),
135 B.R. 641, 643 (9th Cir. BAP 1992)). Campbell thus doesn’t show that the
bankruptcy court erred in concluding that the doctors violated its confirma-
tion order.
Second, the doctors maintain that their adversary proceeding was
properly filed because they had “derivative standing” to litigate the trust’s
18
The “automatic stay serves to protect the bankruptcy estate from actions taken
by creditors outside the bankruptcy court forum, not legal actions taken within the bank-
ruptcy court.” Campbell, 545 F.3d at 356 (quoting In re Sammon, 253 B.R. 672, 681 (Bankr.
D.S.C. 2000)).
13
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claims on its behalf. Based on In re Louisiana World Exposition, Inc., 832 F.2d
1391, 1397–98 (5th Cir. 1987), they say they had the power to assert the trust’s
claims because Quinn had “refuse[d] or [was] unable to act in the best
interest[s] of creditors.” That claim faces two problems.
The first is that the doctors forfeited it. They didn’t include it in their
statement of issues on appeal or press it before the district court. 19 The doc-
tors were required to do both to preserve that claim. 20 Since they didn’t, that
claim has been forfeited.
The second problem is that the doctors’ theory is wrong. Louisiana
World Exposition, 832 F.2d at 1397, permits only creditors’ committees to assert
derivative standing on behalf of a debtor. The doctors are no such commit-
tee. What’s more, that decision “generally” requires “that the debtor-in-
possession ha[s] refused unjustifiably to pursue the claim” and “that the
committee first receive leave to sue from the bankruptcy court” before filing.
Id. The doctors never demanded that Quinn pursue their claims and never
received permission from the bankruptcy court to file their adversary. Thus,
notwithstanding Louisiana World Exposition, the doctors violated the confir-
mation order by filing their adversary.
B.
The doctors make their last stand on the bad-faith requirement. Recall
that a bankruptcy court may sanction litigants only if it finds, by clear and
convincing evidence, that they acted in bad faith or willfully abused the judi-
19
Instead, they took the opposite position: that their claims were direct, not
derivative.
20
See Frazin v. Haynes & Boone, L.L.P. (In re Frazin), 732 F.3d 313, 324 (5th Cir.
2013); Smith v. H.D. Smith Wholesale Drug Co. (In re McCombs), 659 F.3d 503, 510 (5th Cir.
2011).
14
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cial process. In re Moore, 739 F.3d at 729–30. The bankruptcy court found
that the doctors were acting in bad faith because they had knowingly violated
the confirmation order. The doctors say this determination was erroneous.
We disagree.
Clear and convincing evidence supports the bankruptcy court’s find-
ing that the doctors knowingly violated its confirmation order. The doctors
were unquestionably aware of the confirmation order; they had even objected
to it when the bankruptcy court was deciding whether to enter it. When
Camil Kreit violated that order by seeking to assert control over a different
fraud claim that belonged to the trust, the bankruptcy court sanctioned him.
Despite being on notice that the fraud claims belonged to the trust, the doc-
tors shopped around to find an attorney who would file their suit. After they
succeeded in finding one, each of them reviewed the draft complaint and
approved it before the lawyer filed it. And Kreit ultimately admitted that he
knew that complaint incorporated arguments that had been rejected by this
court. This evidence leads us to the “firm” conclusion that the doctors knew
that the confirmation order barred them from filing this adversary proceed-
ing. Crowe v. Smith, 261 F.3d 558, 563 (5th Cir. 2001). That means they did
so in bad faith. The bankruptcy court’s sanctions order was justified.
The doctors contest that determination on two grounds. 21 In their
view, they “were left with no choice because the fiduciary refused to protect
and prosecute the claims of the estate,” and their actions “were good faith
efforts to preserve the claims of the estate in the only manner left to them
under the framework of the Bankruptcy Code.” Once again, both of those
21
The doctors characterize one of their arguments as a due process challenge, but
it is better understood as a challenge to the bankruptcy court’s bad-faith finding, which was
a necessary prerequisite for it to sanction the doctors using its inherent authority. See
Moore, 739 F.3d at 730.
15
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arguments fail.
The first is based on a blatant mischaracterization of the record. The
doctors never asked Quinn to pursue the claims against their rival, so Quinn
could never have “refused” to do so. The second fails for the same reason.
The doctors could have helped to preserve the claims of the estate by notify-
ing Quinn and asking him to pursue them. Instead, in the words of the bank-
ruptcy court, “they just hauled off and filed the suit seeking relief that
belongs” to the trust. Hence, the doctors haven’t cast doubt on the bank-
ruptcy court’s conclusion that they were acting in bad faith when they filed
their adversary. The factual findings stand.
AFFIRMED.
16