Anti Lothian Bankruptcy Fraud v. Lothian Oi , 508 F. App'x 352 ( 2013 )

Case: 11-51082 Document: 00512121946 Page: 1 Date Filed: 01/23/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 23, 2013
No. 11-51082 Lyle W. Cayce
Clerk
In the Matter of: LOTHIAN OIL, INCORPORATED,
Debtor
------------------------------
ANTI LOTHIAN BANKRUPTCY FRAUD COMMITTEE;
ISRAEL GROSSMAN,
Appellants
v.
LOTHIAN OIL, INCORPORATED, Jointly Administered Member Cases
Lothian Oil (USA Inc.; Lothian Oil Texas I, Inc.; Lothian Oil Texas II, Inc.;
Lothian Oil Investments I, Inc.; Lothian Oil Investments II, Inc.; LeaDI
JVGP, Inc.); NAWAB ENERGY PARTNERS, L.P.; FRIO ENERGY
PARTNERS, LP,
Appellees.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 7:10-CV-2
Before JOLLY, JONES, and GRAVES, Circuit Judges.
Case: 11-51082 Document: 00512121946 Page: 2 Date Filed: 01/23/2013
No. 11-51082
EDITH H. JONES, Circuit Judge:*
In the latest chapter of this controversy, Appellants—the Anti-Lothian
Bankruptcy Fraud Committee and Israel Grossman (“Anti-Lothian”)—challenge
adverse rulings on eight motions by the bankruptcy court for the Western
District of Texas. Finding no reversible error of fact or law, we AFFIRM.
BACKGROUND
Anti-Lothian is an unofficial group of shareholders seeking remedies for
alleged fraudulent transfers of property between Lothian Oil (“Debtor”) and
creditor entities headed by a company called the Belridge Group. On June 13,
2007, Lothian filed for Chapter 11 bankruptcy protection. The same day,
motions were filed to approve settlement agreements between the Debtor and
two creditors: Nawab Energy Partners, LP (“Nawab”) and Frio Energy Partners,
LP (“Frio”). These agreements, approved by the bankruptcy court on July 16,
2007 (“2007 Compromise Orders”), involved the settlement of lawsuits previously
brought by Lothian to protect properties on which the Belridge Group companies
were attempting to foreclose.
Like an earlier group known as the Ad Hoc Committee of Series A
Preferred Convertible Shareholders (“AHC”), Appellants claim that conflicts of
interest should have required invalidation of these orders, which surrendered
the properties at issue without commensurate compensation. A motion was filed
by the AHC on June 10, 2008 to set aside the 2007 Compromise Orders under
Bankruptcy Rule 9024. The bankruptcy plan was confirmed on June 27, 2008.
The plan incorporated the settlements with Nawab and Frio but carved out
*
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.
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AHC’s right to pursue its 9024 Motion. After the confirmation, most of the
members of the AHC settled their claims related to the motion and the
bankruptcy court entered an order approving those settlements on December 12,
2008. The attorney for the Appellants at the time, Jessica Sokol, filed but later
withdrew an objection to the settlement.
On June 29, 2009, the First Anti-Lothian Bankruptcy Fraud Committee
(many Appellants here, including two AHC members who did not settle) filed the
First Anti-Lothian Document challenging the 2007 Compromise Orders and
requesting that the plan be set aside because of recently-discovered fraud. This
document was dismissed without prejudice on September 17, 2009—the day
after the Second Anti-Lothian Document was filed by the current Appellants.
Rather than asking for the Confirmed Plan to be set aside, the Second
Anti-Lothian Document asked the bankruptcy court to “clarify or modify” the
plan by, inter alia, setting aside the Compromise Orders and other fraudulent
transfers.
The bankruptcy court heard arguments on motions related to the Second
Anti-Lothian Document (Orders 2333 and 2338) as well as cross-motions for
enforcement of the Plan (Order 2334) against the Appellants and their counsel,
Sokol, on October 27, 2009. Motions to disgorge the Chief Restructuring Officer’s
fees (Order 2337) as well as sanction professionals related to the Belridge Group
and appoint an impartial trustee (Order 2349) were also argued at that time.
Sokol had been previously summoned before the bankruptcy court regarding her
pro hac vice status, and motions related to that hearing were also before the
court. Sokol argued a motion for acceptance of Bankruptcy Rule 2019(a)
supplemental documentation and renewal of an emergency cross motion for
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similar compliance by opposing counsel (Order 2324); the original emergency
cross motion that would allow her to continue her pro hac vice status after the
hearing (Order 2325); and the original emergency cross motion seeking
Rule 2019(a) compliance from opposing counsel (Order 2326). The bankruptcy
court held against the Appellants and in favor of the reorganized Debtor on each
motion. Sokol’s previous pro hac filings were accepted but she was stopped from
continuing such practice and Appellants were not allowed to file further
pleadings in the bankruptcy court without prior court approval.
On appeal the district court ruled for the Appellees on all of the orders.
Appeals of the three pro hac vice–related orders were dismissed because they
were noticed out of time, and the other five orders were affirmed. The two
orders that served as the primary focus of the district court opinion were related
to the Second Anti-Lothian Document (with its 9024 Motion to Set Aside
Settlements). Both orders were affirmed because the 9024 Motion to set aside
the Compromise Orders was filed after the 180-day window available for
challenging the confirmation of a bankruptcy plan under 11 U.S.C. § 1144. The
remaining orders were upheld based on inadequate briefing by the Appellants.
This timely appeal followed.
STANDARD OF REVIEW
When reviewing a bankruptcy appeal from the district court, this court
applies “the same standard to the bankruptcy court’s findings of fact and
conclusions of law that the district court applied.” In re Morrison, 555 F.3d 473,
480 (5th Cir. 2009). “That standard reviews findings of fact for clear error and
conclusions of law de novo.” In re Lothian, Inc., 650 F.3d 539, 542 (5th Cir.
2011).
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DISCUSSION
I. The Pro Hac Vice Orders
Orders 2324, 2325, & 2326—those related to Sokol’s pro hac vice
status—were signed on October 28, 2009. The deadline for filing an appeal of an
adverse ruling in bankruptcy court was ten days at that time.
FED. R. BANKR. P. 8002(a). Appellants, however, filed their notice on
November 12, 2009. The district court was, therefore, correct to dismiss these
appeals as untimely.1
II. The Second Anti-Lothian Document Orders
In its Orders 2338 and 2333, respectively, the bankruptcy court denied the
Second Anti-Lothian Document’s 9024 Motion to Set Aside the Settlements and
granted the Debtor’s Motion to Dismiss the Second Anti-Lothian Document. The
bankruptcy court held the Confirmed Plan to be final and assumed the 9024
Motion was an attempt to relitigate what already was or should have been
litigated by the AHC claimants. The court rejected the document, in part, as
barred by 180-day limitation period for revoking fraudulent plan/confirmation
orders.2 11 U.S.C. § 1144. Likewise, the district court relied on limitations in
affirming the bankruptcy court, invoking § 1144 as its one “fatal” arrow.
1
An amendment to FRBP 8002 took effect on December 1, 2009, changing the appeal
notice deadline to fourteen days. The notice here would have been out of time, though, even
under the new rule.
2
The bankruptcy court offered five reasons for rejecting Appellants’ motions here:
(1) lack of standing; (2) limitations; (3) res judicata; (4) collateral estoppel; and (5) judicial
estoppel.
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Appellants raise several challenges to this reasoning. First, it is argued
that the Second Anti-Lothian Document is not an attempt to revoke the
Confirmed Plan but merely asks for a modification in which fraudulent transfers
and illicit fees are returned to the estate. Also, because the plan itself made
room for the initial 9024 Motion by the AHC, the current “attack” on the biased
transactions at issue (the Nawab and Frio settlements) is merely in keeping with
that carve-out. Any delays in the filing could be excused by newly discovered
evidence about the conflicts of interest and the fact that, even if the Appellants
are not part of the AHC (two of them were—the MYG Trust and the Herzberg
Family Trust), the Second Anti-Lothian Document’s claim is “related to” those
brought in the AHC 9024 Motion.3 These arguments fail for multiple reasons.
To begin, the district court was correct to doubt Anti-Lothian’s standing.
Even if we accept the dubious proposition that the Second Anti-Lothian
Document merely sought modification of the plan, only the plan’s proponents or
the debtor may modify a confirmed plan. 11 U.S.C. § 1127. Anti-Lothian is
neither. Permission was not sought from the bankruptcy court to bring a
derivative action on the debtor’s behalf, Louisiana World Exposition v. Fed. Ins.
Co., 858 F.2d 233, 252–53 (5th Cir. 1988), nor was futility claimed to excuse such
failure. Anti-Lothian thus lacks the requisite standing to make a motion to
modify the Confirmed Plan.
More definitively, the Second Anti-Lothian Document fails based on
limitations; potential excuses for its lateness are unavailing. 11 U.S.C. § 1144,
which allows revocation of a fraudulent bankruptcy plan, requires that relief be
3
Section 6.9 of the Confirmed Plan reserved rights to the Debtor to pursue any and all
claims related to the AHC Motion.
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sought within 180 days of confirmation. The one-year limit on Rule 60(b)
motions provided in Bankruptcy Rule 9024 is expressly subject to the § 1144
limit. FED. R. BANKR. P. 9024(3). The Second Anti-Lothian Document4 was filed
more than a year after the plan was confirmed. Treated as a motion to revoke
confirmation under § 1144, as the district court held, the document is plainly
untimely. But even if it is a cognizable Rule 9024 motion, it was filed beyond the
rules’s one-year deadline. Moreover, the First Anti-Lothian Document cannot
be relied on to rescue the filing date since that motion was dismissed and no
appeal was filed.
Appellants ask this court to consider excusing the normal limitations on
attacking bankruptcy plans because of their recently acquired evidence
concerning fraud. Though the “newness” of Appellant’s evidence is doubtful, any
form of tolling is precluded by the text of both potential avenues for dealing with
fraud in this context. Section 1144 and Rule 9024, the latter encompassing
Rule 60(b)(3), each explicitly treat fraud. It would make little sense to toll the
limitations period of rules designed to deal with fraud because fraud was
present.
Alternatively, the carve-out in the Confirmed Plan cannot be used to bring
this action for several reasons. First, the plan only preserves AHC’s Rule 9024
Motion, the one in existence at the time of the confirmation. Plan § 6.9. Second,
while the Debtor possesses a reservation of rights related to the AHC motion,
Appellants do not. Id. Even if we were to assume that the meaning of “related
to [a specifically named motion]” in Plan § 6.9 can be stretched to include future
4
The district court held that the Second Anti-Lothian Document sought, in substance,
either a revocation or a dramatic modification of the confirmation order. While that appears
to be correct, the question is unnecessary for us to answer.
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motions (we doubt that it should), Appellants do not have the authority to bring
suit to defend the Debtor’s reserved rights. The better interpretation of the plan
is that the settlement of the AHC motion extinguished claims related to it.
In sum, the district court would have been on solid ground in rejecting the
Second Anti-Lothian document for any number of reasons. Even if further
evidence of the conflicts of interest emerged post-confirmation, there was enough
in the winter of 2008 for the AHC to obtain a carve-out in the plan to pursue a
9024 Motion and ultimately a monetary settlement (favorable to Israel
Grossman, among others) related to the Nawab and Frio Compromise Orders.
The carve-out in the plan did not have in mind the scenario of piece-mealing of
redundant 9024 claims. Once a bankruptcy plan is confirmed, § 1144 sets the
length of time available to challenge it—even when fraud is involved.5
III. The Remaining Orders
Each of the remaining orders was held to be insufficiently briefed before
the district court and, therefore, abandoned. Given the Appellants’ lack of
systematic attention to each of the bankruptcy court’s reasons, we uphold the
district court’s determination. It is not the function of an appellate court—or the
district court functioning in an appellate role for the bankruptcy court—to divine
arguments on behalf of litigants from a substantial narrative; undeveloped
arguments are rightly ignored. United States v. Martinez, 263 F.3d 436, 438
(5th Cir. 2001). Nor should this court pass on arguments that were never
properly presented to the district court.
5
Appellants’ claim that they seek to preserve claims against non-debtors, i.e., claims
not covered by § 1144, is meritless. The Compromise Orders, which were recapitulated in the
plan, covered those non-debtors as well; only an appeal of the confirmation order could have
changed this.
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CONCLUSION
This case is epitomized by the Supreme Court’s admonition: “Deadlines
may lead to unwelcome results, but they prompt parties to act and they produce
finality.” Taylor v. Freeland & Kronz, 503 U.S. 638, 644, 112 S. Ct. 1644, 1648
(1992). For the reasons stated above, we AFFIRM.
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