Case: 10-10717 Document: 00511546943 Page: 1 Date Filed: 07/21/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 21, 2011
No. 10-10717 Lyle W. Cayce
Clerk
In the Matter of: TEXAS WYOMING DRILLING, INC.,
Debtor
------------------------------
JOHN DEE SPICER, Chapter 7 Trustee for Texas Wyoming Drilling, Inc.,
Appellee,
v.
LAGUNA MADRE OIL & GAS II, L.L.C.; PALOMA VENTURES; RONALD
KNECHT; STEPHEN L. DANCHOK; GARTH STANGER, Trustee of the
Stanger Family Trust; WILLIAM E. WALTHERS; DONALD ANDERSON,
Trustee of the Anderson Living Trust; TRUSTEE OF THE DALE AND
CAROLYN HANST TRUST; ERIC KIERSH; MICHAEL HUMPHREY, Trustee
of the Humphrey Family Trust; WADE VESSEY; KAREN VESSEY; KEITH
HANST; LEO HANLY; DANNY JACKSON; GARY GRACE; WILLIAM
BRINKOP; DAN PETERS,
Appellants.
Appeal from the United States Bankruptcy Court
for the Northern District of Texas
Case: 10-10717 Document: 00511546943 Page: 2 Date Filed: 07/21/2011
No. 10-10717
Before DAVIS, CLEMENT, and ELROD, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
Laguna Madre Oil & Gas II, L.L.C., et al., (“Laguna”), appeals the
bankruptcy court’s denial of its motion for summary judgment. We AFFIRM.
FACTS AND PROCEEDINGS
Texas Wyoming Drilling, Inc. (“TWD”) filed a voluntary petition for
bankruptcy under Chapter 11. Thereafter, TWD filed its disclosure statement
and plan, both of which were approved by the bankruptcy court. Among other
things, the plan eliminated all of TWD’s shareholders’ stock interests in TWD.
Central to this dispute are the terms of the plan and the disclosure
statement; namely, whether the terms preserved TWD’s claims against Laguna.
Under the section entitled “Retention of Causes of Action,” the plan provides
that “[t]he Reorganized Debtor shall retain all rights, claims, defenses, and
causes of action including, but not limited to, the Estate Actions, and shall have
sole authority to prosecute and/or settle such actions.” (R. 122). “Estate
Actions” is defined to include claims under Chapter 5 of the Bankruptcy Code.1
(R. 126-27). The disclosure statement also states that “[t]he Debtor reserves all
rights to pursue, at its sole discretion, any Estate Actions not limited to but
including any preference to the full extent allowed under the Bankruptcy Code
and applicable state laws. The Debtor may also pursue other actions including
but not limited to actions under sections 542 and 549 of the Bankruptcy Code.”
(R. 113). The disclosure statement again defines “Estate Actions” to include
“various potential avoidable transfers that can be recovered under Chapter 5.”
1
Avoidance actions arise under Chapter 5 of the Bankruptcy Code, specifically 11
U.S.C. §§ 544-51.
2
Case: 10-10717 Document: 00511546943 Page: 3 Date Filed: 07/21/2011
No. 10-10717
(R. 113). Included within the disclosure statement was a chart outlining
“various claims and causes of action the Debtor or the Reorganized Debtor may
pursue on behalf of the Debtor’s estate.” (R. 114-15). As one of the potential
defendants, the chart listed “Various pre-petition shareholders of the Debtor”
who might be sued for “fraudulent transfer and recovery of dividends paid to
shareholders,” valuing the claims at approximately $4 million. (R. 115).
A few months after confirmation of the plan, TWD sued thirty-two of its
former shareholders, including the appellants here, for pre-petition dividend
payments that were allegedly fraudulent transfers under 11 U.S.C. §§ 544, 548,
and 550, and the Texas Business and Commerce Code, alleging that the former
shareholders had received dividends and other transfers equaling millions of
dollars while TWD was insolvent (“Avoidance Actions”). (R. 24-29).
Laguna filed a motion for summary judgment, arguing that TWD had no
standing because TWD’s plan did not adequately retain the Avoidance Actions
under 11 U.S.C. § 1123. In the alternative, Laguna argued that TWD’s claims
were barred by res judicata and judicial estoppel. The day before the hearing
on Laguna’s motion, the bankruptcy court sua sponte converted TWD’s Chapter
11 bankruptcy to a Chapter 7 bankruptcy because TWD had materially
defaulted under the plan. The trustee automatically succeeded TWD as the
plaintiff in the Avoidance Actions proceedings against Laguna. The bankruptcy
court then denied Laguna’s motion, holding that the defenses were meritless,
but that, even if any of them had merit, the court’s conversion of the case meant
that the Chapter 7 trustee could pursue the claims even though the post-
confirmation Chapter 11 debtor could not. At Laguna’s request, the bankruptcy
court certified the order for direct appeal, see 28 U.S.C. § 158(d)(2), and this
3
Case: 10-10717 Document: 00511546943 Page: 4 Date Filed: 07/21/2011
No. 10-10717
court granted Laguna’s petition for permission to appeal.
STANDARD OF REVIEW
A grant of summary judgment is reviewed de novo. Fahim v. Marriott
Hotel Servs., Inc., 551 F.3d 344, 348 (5th Cir. 2008). Summary judgment is
appropriate if “the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” FED.
R. CIV. P. 56(a). We review questions of jurisdiction, including standing, de novo.
Bonds v. Tandy, 457 F.3d 409, 411 (5th Cir. 2006). If the district court expressly
or implicitly resolved any factual disputes in making its jurisdictional ruling, we
review such findings for clear error. See Pederson v. La. State Univ., 213 F.3d
858, 869 (5th Cir. 2000). “[B]ecause ‘judicial estoppel is an equitable doctrine,
and the decision whether to invoke it [is] within the court’s discretion, we
review for abuse of discretion’ the lower court’s decision to invoke it.” Kane v.
Nat’l Union Fire Ins. Co., 535 F.3d 380, 384 (5th Cir. 2008) (citation omitted).
“The res judicata effect of a prior judgment is a question of law that we review
de novo.” Davis v. Dallas Area Rapid Transit, 383 F.3d 309, 313 (5th Cir. 2004).
DISCUSSION
I. Standing
“[A]fter confirmation of a plan, the ability of the debtor to enforce a claim
once held by the estate is limited to that which has been retained in the
[bankruptcy] plan.” Dynasty Oil & Gas, L.L.C. v. Citizens Bank (In re United
Operating, L.L.C.), 540 F.3d 351, 355 (5th Cir. 2008); see also 11 U.S.C.
§ 1123(b)(3) (“[A] plan may . . . provide for . . . the retention and enforcement [of
any claim] by the debtor.”). “For a debtor to preserve a claim, the plan must
expressly retain the right to pursue such actions. The reservation must be
4
Case: 10-10717 Document: 00511546943 Page: 5 Date Filed: 07/21/2011
No. 10-10717
specific and unequivocal.” In re United Operating, 540 F.3d at 355 (citations
and internal quotation marks omitted); see also Nat’l Benevolent Ass’n of the
Christian Church v. Weil, Gotshal & Manges, LLP (In re Nat’l Benevolent Ass’n
of the Christian Church), 333 F. App’x 822, 826 (5th Cir. 2009). “If a debtor has
not made an effective reservation, the debtor has no standing to pursue a claim
that the estate owned before it was dissolved. This is a logical consequence of
the nature of a bankruptcy, which is designed primarily to secure prompt,
effective administration and settlement of all debtor's assets and liabilities
within a limited time.” In re United Operating, 540 F.3d at 355 (internal
quotation marks omitted). The purpose of the rule is to put “creditors on notice
of any claim [the debtor] wishes to pursue after confirmation” and enable
“creditors to determine whether a proposed plan resolves matters satisfactorily
before they vote to approve it.” Id. “[A]bsent specific and unequivocal retention
language in the plan, creditors lack sufficient information regarding their
benefits and potential liabilities to cast an intelligent vote.” Id. (internal
quotation marks omitted).
a. Disclosure Statement
We first address Laguna’s argument that this court may not consider the
disclosure statement alongside the plan to determine whether the trustee has
standing. Although no court of appeals has addressed whether the disclosure
statement may be consulted for purposes of standing, courts routinely consult
the disclosure statement in deciding whether res judicata and judicial estoppel
apply. See, e.g., Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197,
208 (5th Cir. 1999) (explaining that claims must be revealed in plan and
disclosure statement or trustee may be judicially estopped from pursuing them);
5
Case: 10-10717 Document: 00511546943 Page: 6 Date Filed: 07/21/2011
No. 10-10717
Browning v. Levy, 283 F.3d 761, 774 (6th Cir. 2002) (considering whether the
disclosure statement properly preserved claims or whether res judicata and
judicial estoppel should be applied); In re Kelley, 199 B.R. 698, 704 (B.A.P. 9th
Cir. 1996) (holding that “if the debtor fails to mention the cause of action in
either his schedules, disclosure statement, or plan, then he will be precluded
from asserting it postconfirmation”). In addition, several lower courts have held
that, with respect to standing, “[c]ourts are to consider the disclosure statement
as well as the terms of a plan of reorganization.” Floyd v. CIBC World Mkts.,
Inc., 426 B.R. 622, 637-38 (S.D. Tex. 2009). By contrast, at least one other court
has held that language in the disclosure statement cannot satisfy the statutory
requirement in 11 U.S.C. § 1123(b)(3)(B) that the “retention and [right of]
enforcement” of claims “be set forth in the [p]lan.” See Ice Cream Liquidation,
Inc. v. Calip Dairies, Inc. (In re Ice Cream Liquidation), 319 B.R. 324, 333 n.14
(Bankr. D. Conn. 2005). But § 1123(b)(3)(B) does not explicitly or implicitly
address whether claims may also be preserved in the disclosure statement.
We observe that the disclosure statement is the primary notice mechanism
informing a creditor’s vote for or against a plan. See 11 U.S.C. § 1125.
Considering the disclosure statement to determine whether a post-confirmation
debtor has standing is consistent with the purpose of In re United Operating’s
requirement: placing creditors on notice of the claims the post-confirmation
debtor intends to pursue. See 540 F.3d at 355. In light of the role served by the
disclosure statement, the purpose behind the rule in In re United Operating,
and the fact that, in similar contexts, courts routinely consider the disclosure
statement to determine whether a claim is preserved, we hold that courts may
consult the disclosure statement in addition to the plan to determine whether
6
Case: 10-10717 Document: 00511546943 Page: 7 Date Filed: 07/21/2011
No. 10-10717
a post-confirmation debtor has standing.
b. Language in Plan and Disclosure Statement
Laguna asserts that under this court’s precedent in In re United
Operating, TWD failed to retain the Avoidance Actions in the plan and the
trustee lacks standing to pursue these claims. After confirmation of the plan,
the In re United Operating debtor sought to bring common-law claims against
its creditors, including maladministration causes of action. Id. at 356. The plan
contained only a blanket reservation of “any and all claims” arising under the
Bankruptcy Code, as well as specific reservations of other types of claims also
arising under the Code. Id. There was no mention of any common-law claims.
We held that “[i]f [the debtor] had wanted to bring a post-confirmation action
for maladministration of the estate’s property during the bankruptcy, it was
required to state as much clearly in the [p]lan” and that the use of generic
language reserving “any and all claims” under the Code was insufficient to
retain a claim for maladministration of the estate. Id. Unlike the plan in In re
United Operating, which contained only a blanket reservation of “any and all
claims,” TWD’s plan and disclosure statement revealed the existence of the
Avoidance Actions, the possible amount of recovery to which they would lead,
the basis for the actions (namely, pre-petition dividends and transfers to equity
interest holders), and that the reorganized debtor intended to pursue the
claims. The terms of TWD’s plan and disclosure statement are far more specific
than those in In re United Operating.
Additionally, Laguna contends that because the plan and disclosure
statement did not name the individual defendants, the debtor failed to retain
the Avoidance Actions under In re United Operating. We observe that In re
7
Case: 10-10717 Document: 00511546943 Page: 8 Date Filed: 07/21/2011
No. 10-10717
United Operating focused exclusively on the retention of claims. It never held
that intended defendants must be named in the plan. But it did cite with
approval In re Ice Cream Liquidation, for the proposition that “the plan’s
categorical reservation of ‘preference’ claims was sufficiently specific; plan need
not itemize individual transfers that may be pursued as preferential.” In re
United Operating, 540 F.3d at 355 (citing In re Ice Cream Liquidation, 319 B.R.
at 337-38). In re Ice Cream Liquidation held that while creditors must be told
in the plan that avoidance actions will be pursued post-confirmation, individual
prospective defendants did not have to be identified. 319 B.R. at 337-38.
In re United Operating’s citation to In re Ice Cream Liquidation’s holding
supports the trustee’s argument that a plan need not identify the prospective
defendants. However, we need not decide whether a debtor whose plan fails
to identify any prospective defendants has standing to pursue post-
conformation claims against subsequently-named defendants. Here, the
disclosure statement did identify the prospective defendants as “[v]arious pre-
petition shareholders of the Debtor” who might be sued for “fraudulent transfer
and recovery of dividends paid to shareholders.” We hold that where the plan
and disclosure statement reserved the right to pursue the Avoidance Actions
against pre-petition shareholders of TWD, the reorganized debtor specifically
and unequivocally retained these claims under In re United Operating. The
trustee therefore has standing to pursue the Avoidance Actions,2 and the
2
Laguna also argues that because the plan explicitly released one former shareholder
from all liability, it was required to name the individual defendants against whom it would
bring suit. Notwithstanding the plan’s release of one former shareholder, because the plan and
disclosure statement sufficiently reserved the right to bring the Avoidance Actions, the trustee
has standing to pursue them.
8
Case: 10-10717 Document: 00511546943 Page: 9 Date Filed: 07/21/2011
No. 10-10717
district court properly denied summary judgment on this ground.3
II. Judicial Estoppel
The defendants argue that the trustee is judicially estopped from
pursuing the Avoidance Actions because TWD failed to disclose the actions on
its schedules. This circuit has outlined three requirements for judicial estoppel:
(1) clearly inconsistent positions; (2) the court’s acceptance of the previous
position; and (3) absence of inadvertence. Superior Crewboats, Inc. v. Primary
P&I Underwriters (In re Superior Crewboats, Inc.), 374 F.3d 330, 335 (5th Cir.
2004). The purpose of judicial estoppel is “to protect the integrity of the judicial
process” by preventing parties from “playing fast and loose” with the courts.
Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir. 1988) (internal
quotation marks omitted). It is generally invoked where “intentional self-
contradiction is being used as a means of obtaining unfair advantage in a
forum provided for suitors seeking justice.” In re Superior Crewboats, Inc., 374
F.3d at 334-35.
The defendant’s argument founders on the first requirement because
TWD did not take clearly inconsistent positions. As explained above, TWD’s
plan and disclosure statement retained the right to pursue the Avoidance
Actions. Because TWD explicitly retained the same claims against the
defendants that the trustee is now pursuing, there is no inconsistency in its
position. The district court’s holding that the trustee was not judicially
estopped from pursuing the Avoidance Actions was not an abuse of discretion.
3
Because we hold that the plan and disclosure statement sufficiently preserved the
Avoidance Actions, we need not address the Shareholder’s appeal of the bankruptcy court’s
alternative finding that the conversion of the TWD’s Chapter 11 bankruptcy into a Chapter
7 bankruptcy conferred standing upon the newly-appointed trustee of the estate.
9
Case: 10-10717 Document: 00511546943 Page: 10 Date Filed: 07/21/2011
No. 10-10717
III. Res Judicata
The defendants also argue that the Avoidance Actions are barred by res
judicata based on the bankruptcy court’s order confirming the plan. For res
judicata to apply: (1) the parties must be identical in both suits; (2) a court of
competent jurisdiction must have rendered the prior judgment; (3) there must
have been a final judgment on the merits in the previous decision; and (4) the
plaintiff must raise the same cause of action or claim in both suits. Howe v.
Vaughan (In re Howe), 913 F.2d 1138, 1143-44 (5th Cir. 1990). In bankruptcy
cases, the confirmation order is the first judgment. Eubanks v. Fed. Deposit
Ins. Corp., 977 F.2d 166, 170 (5th Cir. 1992).
Res judicata does not apply here. The defendants have not pointed to a
prior final judgment on the merits of the Avoidance Actions. “A judgment that
expressly leaves open the opportunity to bring a second action on specified
parts of the claim or cause of action that was advanced in the first action
should be effective to forestall preclusion.” Vines v. Univ. of La. at Monroe, 398
F.3d 700, 712 (5th Cir. 2005). “Res judicata does not apply where a claim is
expressly reserved by the litigant in the earlier bankruptcy proceeding.”
Browning, 283 F.3d at 774; Ries v. Paige (In re Paige), 610 F.3d 865, 875 (5th
Cir. 2010) (holding that a trustee’s claim was barred by res judicata and stating
that the trustee “could have asked the bankruptcy court to reserve his fraud
claims for later adjudication,” which would have avoided his claims being
barred). The confirmation order here provided that TWD retained the right to
“demand, enforce, and litigate Estate Actions [which include the Avoidance
Actions].” As the bankruptcy court held, “where, as here, an intent to pursue
a claim post-confirmation has been manifested in both the confirmed plan and
10
Case: 10-10717 Document: 00511546943 Page: 11 Date Filed: 07/21/2011
No. 10-10717
its associated disclosure statement, the res judicata effect of confirmation
would not . . . preclude pursuit of those claims.” Spicer v. Laguna Madre Oil
& Gas II, L.L.C. (In re Texas Wyoming Drilling, Inc.), 422 B.R. 612, 636
(Bankr. N.D. Tex. 2010). The confirmation order specifically left open the
opportunity for TWD to bring the claims in a second action, and the claims
should not be precluded. Because the confirmation order preserved the
Avoidance Actions, they are not barred by res judicata.
CONCLUSION
The bankruptcy court properly denied Laguna’s motion for summary
judgment because the plan adequately preserved the Avoidance Actions and the
claims were not barred by judicial estoppel or res judicata. We AFFIRM.
11