Highland Captl Mgmt v. Seven Seas Petro Inc ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 31, 2008
No. 07-20303 Charles R. Fulbruge III
Clerk
In The Matter Of: SEVEN SEAS PETROLEUM INC
Debtor
-----------------------------
HIGHLAND CAPITAL MANAGEMENT LP;
ML CBO IV (CAYMAN) LTD; PAMCO CAYMAN LIMITED;
PAM CAPITAL FUNDING LP; FAMCO VALUE INCOME
PARTNERS, LP; FAMCO OFFSHORE LTD
Appellants
v.
SEVEN SEAS PETROLEUM INC
Appellee
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:05-CV-1104
Before KING, DEMOSS, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-20303
After several unsecured creditors of a bankrupt corporation brought claims
in state court against a former executive of the corporation, the bankruptcy court
issued a preliminary injunction barring the prosecution of the claims in state
court. On a motion to reconsider, the bankruptcy court concluded that the
claims belonged to the bankruptcy estate, not the unsecured creditors, and
declined to amend the preliminary injunction. The district court affirmed, and
the unsecured creditors now appeal. For the reasons that follow, we conclude
that this case is moot, vacate the preliminary injunction, and remand with
instructions to dismiss.
I.
Appellants in this case are unsecured creditors of Seven Seas Petroleum,
Inc., a Houston-based oil and gas company. After Seven Seas entered
bankruptcy in 2002, the Chapter 11 trustee sued some of the company’s officers
and directors in an adversary proceeding, alleging, among other things, breach
of various fiduciary duties. Meanwhile, appellants brought an action in state
court against, among others, Robert A. Hefner, III, the former Chairman and
CEO of Seven Seas, asserting claims for conspiracy to defraud and aiding and
abetting fraud. Hefner was and remains a defendant in the trustee’s adversary
proceeding, which has since been transferred and continues in the district court.
The trustee then commenced a separate adversary proceeding in
bankruptcy court against appellants, requesting that the bankruptcy court issue
a temporary injunction staying appellants from prosecution of their claims
against Hefner in state court. The bankruptcy court granted the preliminary
injunction, held a hearing, and issued an order declining to amend the
preliminary injunction.
Prior to the bankruptcy court’s issuance of the preliminary injunction,
though, Hefner moved for summary judgment in the state court proceeding. The
state trial court granted summary judgment in Hefner’s favor, and this ruling
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No. 07-20303
was affirmed on appeal by the Houston Court of Appeals (First District). See
Highland Capital Mgmt. v. Ryder Scott Co., 212 S.W.3d 522 (Tex.
App.—Houston [1st Dist.] 2006, pet. denied). After the close of briefing in this
case, the Texas Supreme Court denied discretionary review of the affirmance of
the grant of summary judgment in favor of Hefner. We requested supplemental
letter briefs on the questions whether these developments have rendered this
case moot and, if so, whether the preliminary injunction should be vacated.
II.
“To qualify as a case fit for federal-court adjudication, ‘an actual
controversy must be extant at all stages of review, not merely at the time the
complaint is filed.’” Arizonans for Official English v. Arizona, 520 U.S. 43, 67
(1997) (quoting Preiser v. Newkirk, 422 U.S. 395, 401 (1975)). “Whether an
actual controversy remains at this stage of the litigation is a question that we
resolve de novo.” Harris v. City of Houston, 151 F.3d 186, 189 (1998) (citing
Elder v. Holloway, 510 U.S. 510, 516 (1994)).
“We have no authority ‘to give opinions upon moot questions or abstract
propositions, or to declare principles or rules of law which cannot affect the
matter in issue in the case before’ us.” Willy v. Admin. Review Bd., 423 F.3d
483, 494 n.50 (5th Cir. 2005) (citing Church of Scientology of Ca. v. United
States, 506 U.S. 9, 12 (1992)). “If an event occurs that prevents us from granting
‘any effectual relief whatever’ to a prevailing party, the controversy is moot, and
the appeal must be dismissed.” Id. (citing Church of Scientology, 506 U.S. at 12).
This doctrine applies here and dictates a finding of mootness: appellants
challenge an injunction that bars them from prosecuting their claims against
Hefner in state court, but Hefner has already obtained a final, non-appealable
judgment in his favor in state court. The appellants’ state court lawsuit is over,
at least as it pertains to Hefner, and any decision by us here will be of no effect.
This case is moot.
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No. 07-20303
Appellants suggest that this case is not moot because they might yet file
a “bill of review” in state court. This argument is unavailing. “A bill of review
is an equitable proceeding brought by a party seeking to set aside a prior
judgment that is no longer subject to challenge by a motion for new trial or
appeal.” Caldwell v. Barnes, 154 S.W.3d 93, 96 (Tex. 2004). However, “[b]ill of
review plaintiffs must ordinarily plead and prove (1) a meritorious defense to the
underlying cause of action, (2) which the plaintiffs were prevented from making
by the fraud, accident or wrongful act of the opposing party or official mistake,
(3) unmixed with any fault or negligence on their own part.” Id. (citations
omitted). Here, appellants have made no showing, or even any argument, that
they were prevented from making a defense in state court to Hefner’s summary
judgment motion, much less that fraud, accident, or official mistake was
responsible.
III.
Having concluded that this case is moot, we must next consider whether
to vacate the preliminary injunction. Historically, the rule was to vacate the
judgment below if the case became moot on appeal. Staley v. Harris County, 485
F.3d 305, 310 (5th Cir. 2007) (en banc) (citations omitted). However, the
Supreme Court has rejected this rule in favor of an approach that calls for case-
by-case determinations based on the facts, rather than an inflexible rule. Id.(citing U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18,
25–26 (1994)).
Nonetheless, “[t]he principal condition to which [the Court has] looked is
whether the party seeking relief from the judgment below caused the mootness
by voluntary action.” U.S. Bancorp, 513 U.S. at 24. Accordingly, “in cases
mooted by actions that were clearly unattributable to the voluntary actions of
the parties, we have consistently vacated.” Staley, 485 F.3d at 311 n.2 (citations
omitted). Here, it is clear that the mootness of this case cannot be attributed to
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No. 07-20303
voluntary actions on the part of either appellants or Seven Seas. It was the
actions of the state courts, in granting Hefner’s motion for summary judgment
and affirming on appeal, as well as Hefner himself, in moving for summary
judgment, that rendered this case moot. Vacatur is therefore appropriate.
IV.
For the foregoing reasons, we conclude that this case is moot. We vacate
the preliminary injunction, remand the case to the bankruptcy court, and direct
that it be dismissed as moot. VACATED and REMANDED with instructions.
Each party shall bear its own costs.
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