Case: 14-31109 Document: 00513075260 Page: 1 Date Filed: 06/11/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 11, 2015
No. 14-31109
Lyle W. Cayce
Clerk
In the Matter of: GULF STATES LONG TERM ACUTE CARE OF
COVINGTON, L.L.C.,
Debtor
------------------------------
DAVID V. ADLER,
Appellant
v.
GREGORY D. FROST; BREAZEALE, SACHSE & WILSON, L.L.P.,
Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:11-CV-1659
Before HIGGINBOTHAM, DAVIS, 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
Case: 14-31109 Document: 00513075260 Page: 2 Date Filed: 06/11/2015
Appellant David V. Adler (“Adler”) appeals the district court’s order
dismissing his common-law tort and contract claims against Appellees Gregory
D. Frost (“Frost”) and Breazeale, Sachse & Wilson, L.L.P. (“BSW”) for lack of
standing. Adler also appeals the district court’s order denying his motion to
reconsider its order dismissing his claims. For the following reasons, we affirm.
I.
Gulf States Long Term Acute Care of Covington, L.L.C. (“Debtor”), a
long-term healthcare facility in Louisiana, filed for bankruptcy under Chapter
11 of the Bankruptcy Code. BSW, a law firm, and Frost, a partner in BSW’s
Baton Rouge office, represented Debtor in several financial transactions
related to its continuing operations prior to bankruptcy. Neither Frost nor
BSW served as Debtor’s bankruptcy counsel in the chapter 11 case, however.
Frost and BSW also represented Debtor’s co-manager and several other
defendants in a related derivative lawsuit. Those defendants are not parties to
this appeal. The parties agree that neither Frost nor BSW was a creditor in
Debtor’s bankruptcy case.
The bankruptcy court ultimately confirmed Debtor’s Third Amended
Plan of Reorganization (the “Plan”). The Plan contains a provision that
purports to retain Debtor’s standing to pursue avoidance actions and
fraudulent transfer actions against a list of named defendants. That list does
not include Frost or BSW.
The Plan also contains a different provision that purports to preserve
“[a]ny and all other claims and causes of action which may have been asserted
by the Debtor prior to the Effective Date” of the Plan. However, that provision
does not specifically describe any “other claim[] or cause[] of action” that Debtor
intends to retain.
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Each of the Plan’s claim retention provisions purports to authorize a
disbursing agent to pursue claims on Debtor’s behalf for the benefit of
unsecured creditors. The bankruptcy court appointed Adler to serve as
Debtor’s disbursing agent.
After the bankruptcy court confirmed the Plan, Adler commenced an
adversary proceeding in the bankruptcy court in which he asserted various
common-law tort and contract claims against Frost and BSW. 1 Adler alleged
that Frost and BSW, “[i]n connection with and during” their representation of
Debtor,
(1) engaged in legal malpractice; (2) deliberately conspired with
the Debtor’s managers and their officers and directors; and (3)
knowingly participated in a scheme to defraud Debtor, its minority
owners, and its creditors of Debtor’s assets for the benefit of
companies owned and controlled by other clients of Frost and BSW.
This scheme resulted in the looting of [Debtor] of an amount in
excess of Five Million Dollars ($5,000,000.00) and [Debtor]’s
ultimate demise.
The district court then withdrew the reference to the bankruptcy court, so that
the district court would rule on the adversary proceeding instead of the
bankruptcy court.
Frost and BSW moved to dismiss Adler’s claims against them. They
argued that Adler lacked standing to pursue his claims because the Plan and
the accompanying disclosure statement failed to specifically and unequivocally
retain them. The district court agreed and accordingly dismissed Adler’s claims
against Frost and BSW.
Adler then returned to the bankruptcy court, seeking, among other
things, a clarification that the Plan specifically reserved his claims against
1 Adler also brought common-law and avoidance actions against several other
defendants in that suit, but those defendants are not parties to this appeal.
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Frost and BSW. The bankruptcy court denied that request because the district
court’s order dismissing those claims was “binding on the parties and this
Court and cannot be collaterally attacked.” However, the bankruptcy court also
ruled that Adler did have standing to pursue claims against several other non-
creditor defendants who are not parties to this appeal.
Armed with the bankruptcy court’s opinion, Adler moved the district
court to reconsider its order dismissing his claims against Frost and BSW.
Adler argued that it would be anomalous to allow him to pursue his claims
against the other non-creditor defendants, but not against Frost and BSW, who
also were not creditors of Debtor. The district court disagreed and accordingly
denied Adler’s motion for reconsideration.
Adler now appeals both the district court’s order dismissing his claims
and its order denying his motion for reconsideration.
II.
The district court granted Frost and BSW’s motion to dismiss Adler’s
claims pursuant to Federal Rule of Civil Procedure 12(b)(1), so we will review
the dismissal order de novo. 2 “We review a district court’s denial of a motion
for reconsideration for abuse of discretion.” 3 “This court interprets the terms
of a bankruptcy reorganization plan . . . de novo and holistically.” 4
2 United States v. Renda Marine, Inc., 667 F.3d 651, 655 (5th Cir. 2012) (citing LeClerc
v. Webb, 419 F.3d 405, 413 (5th Cir. 2005)).
3 LeClerc, 419 F.3d at 412 n.13 (citing Westbrook v. C.I.R., 68 F.3d 868, 879 (5th Cir.
1995)).
4 Evercore Capital Partners II, L.L.C. v. Nancy Sue Davis Trust (In re Davis Offshore,
L.P.), 644 F.3d 259, 263 (5th Cir. 2011) (citing New Nat’l Gypsum Co. v. Nat’l Gypsum Co.
Settlement Trust (In re Nat’l Gypsum Co.), 219 F.3d 478, 484 (5th Cir. 2000)).
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III.
Ordinarily, when a bankruptcy court confirms a chapter 11
reorganization plan, the bankruptcy estate ceases to exist, and the debtor (or
its representative) loses its authority to pursue claims on behalf of the estate. 5
However, section 1123(b)(3)(B) of the Bankruptcy Code allows a reorganization
plan to “provide for . . . the retention and enforcement by the debtor, by the
trustee, or by a representative of the estate appointed for such purpose, of any
. . . claim or interest” belonging to the debtor or to the estate.
In Dynasty Oil & Gas, LLC v. Citizens Bank (In re United Operating,
LLC), 540 F.3d 351 (5th Cir. 2008) (“United Operating”), we held that “[a]fter
confirmation of a plan, the ability of the debtor” or its representative “to enforce
a claim once held by the estate is limited to that which has been retained in
the plan.” 6 “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.” 7
“For a debtor to preserve a claim, the plan must expressly retain the right to
pursue such actions. The reservation must be specific and unequivocal.” 8 A
“blanket reservation of ‘any and all claims’” is insufficient to preserve the
debtor’s standing to sue. 9 This rule is intended to (1) promote the efficient
administration of the bankruptcy estate and (2) provide creditors the
5 Dynasty Oil & Gas, LLC v. Citizens Bank (In re United Operating, LLC), 540 F.3d
351, 355 (5th Cir. 2008).
6 Id. (brackets omitted) (quoting Paramount Plastics, Inc. v. Polymerland, Inc. (In re
Paramount Plastics, Inc.), 172 B.R. 331, 333 (Bankr. W.D. Wash. 1994)).
The Court may also consult the disclosure statement accompanying the
reorganization plan to determine whether the post-confirmation debtor has standing. Spicer
v. Laguna Madre Oil & Gas II, L.L.C. (In re Tex. Wyo. Drilling, Inc.), 647 F.3d 547, 551 (5th
Cir. 2011). Here, however, the disclosure statement accompanying the Plan contains no
additional information regarding the Plan’s claim retention provisions that would afford
Adler standing to pursue his claims against Frost and BSW.
7 United Operating, 540 F.3d at 355.
8 Id. (citations and internal quotation marks omitted).
9 Id. at 356.
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information they need to intelligently vote for or against a proposed chapter 11
plan. 10
IV.
The district court concluded that the Plan did not specifically and
unequivocally retain Adler’s claims against Frost and BSW, and therefore
dismissed the claims for lack of standing. Adler argues that he has standing to
pursue his claims because the United Operating doctrine does not apply with
full force where, as here, the debtor’s representative sues defendants who were
not creditors of the debtor and therefore were not entitled to vote on the
debtor’s reorganization plan. Adler contends that, notwithstanding United
Operating, a blanket reservation of “any and all claims” is sufficient to retain
a claim against a defendant if (1) the defendant is a non-creditor and (2) the
reorganization plan clearly identifies how the proceeds of the claim will be
distributed. Adler therefore asks us to announce an exception to United
Operating that this Court has not previously recognized.
We have no occasion to consider whether such an exception exists
because Adler did not properly raise this argument in the proceedings below.
[I]f a litigant desires to preserve an argument for appeal, the
litigant must press and not merely intimate the argument during
the proceedings before the district court. If an argument is not
raised to such a degree that the district court has an opportunity
to rule on it, we will not address it on appeal. 11
Adler did not ask the district court to recognize his proposed exception to
United Operating in his response to Frost and BSW’s motion to dismiss.
Instead, Adler advanced an entirely different argument: that the Plan was
10 Id. at 355 (citations omitted).
11 N.Y. Life Ins. Co. v. Brown, 84 F.3d 137, 141 n.4 (5th Cir. 1996) (quoting FDIC v.
Mijalis, 15 F.3d 1314, 1327 (5th Cir. 1994)).
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sufficiently specific and unequivocal because (1) the Plan mentioned a related
derivative lawsuit and (2) Frost and BSW represented the defendants in that
lawsuit. In other words, Adler argued that he should win under the traditional
United Operating standard; he did not argue that the traditional United
Operating standard should not apply at all. Adler also argued that his claims
would benefit rather than harm the creditors, but that too is very different
from asking the district court to hold that the United Operating doctrine is
categorically inapplicable to a large subset of potential defendants that a
debtor might sue post-confirmation. Adler did briefly state in his response that
Frost and BSW, unlike the creditors, “are not a notice consideration in the
Plan,” but that passing observation “merely intimate[s]” the argument Adler
now raises on appeal. 12 In sum, there is a major difference between the
arguments that Adler briefed in his response and the argument that United
Operating should not apply in this case whatsoever. 13 The district court
therefore had no opportunity to consider the exception that Adler now
proposes.
We acknowledge that Adler thoroughly discussed the proposed exception
to United Operating in his motion for reconsideration. However, this Court
“will not consider an issue raised for the first time in a Motion for
Reconsideration.” 14
12 See id. (quoting Mijalis, 15 F.3d at 1327).
13 The substantial difference between Adler’s arguments before the district court and
Adler’s argument on appeal distinguishes this case from Dallas Gas Partners L.P. v. Prospect
Energy Corp., 733 F.3d 148 (5th Cir. 2013) and Yee v. City of Escondido, 503 U.S. 519, 534
(1992), which Adler cites in his reply brief.
14 Lincoln Gen. Ins. Co. v. De La Luz Garcia, 501 F.3d 436, 442 (5th Cir. 2007)
(citations and internal quotation marks omitted).
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Thus, we will consider only the question preserved for appeal: whether
the Plan specifically and unequivocally reserves Adler’s claims against Frost
and BSW under the traditional United Operating framework.
V.
In the absence of an exception that would render the United Operating
doctrine inapplicable in this case, Adler clearly lacks standing to pursue his
claims, as Adler’s counsel all but conceded at oral argument. The Plan’s
reservation of “[a]ny and all other claims and causes of action which may have
been asserted by the Debtor prior to the Effective Date” is exactly the sort of
blanket reservation that is insufficient to preserve the debtor’s standing. 15
Because the Plan does not set forth the legal basis of Adler’s claims against
Frost and BSW, Adler lacks standing to pursue them. 16
Although the Plan purports to retain avoidance actions and fraudulent
conveyance actions against certain named defendants, an explicit reservation
of avoidance actions is insufficient to reserve a debtor’s standing to pursue
common-law claims. 17 Because Adler’s claims against Frost and BSW are
common-law tort and contract claims rather than avoidance or fraudulent
conveyance actions, the Plan does not specifically and unequivocally preserve
them.
Adler also unsuccessfully argued before the district court that the Plan’s
15United Operating, 540 F.3d at 356. Accord Wooley v. Haynes & Boone, L.L.P. (In re
SI Restructuring Inc.), 714 F.3d 860, 865 (5th Cir. 2013) (“Neither the Plan nor the disclosure
statement references specific state law claims for fraud, breach of fiduciary duty, or any other
particular cause of action. Instead, the Plan simply refers to all causes of action, known or
unknown. As noted, such a blanket reservation is not sufficient to put creditors on notice.”).
16 See Compton v. Anderson (In re MPF Holdings US LLC), 701 F.3d 449, 455 n.4 (5th
Cir. 2012) (“[The requirement] that the reorganization plan set forth the legal basis for the
reserved claims . . . was the core holding of United Operating.”).
17 See SI Restructuring, 714 F.3d at 865.
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passing references to the aforementioned derivative lawsuit and to a D&O
policy were sufficient to retain his claims against Frost and BSW. Adler does
not pursue those arguments on appeal. In any event, the district court correctly
rejected them.
We therefore affirm the district court’s order dismissing Adler’s claims
against Frost and BSW for lack of standing. We likewise conclude that the
district court did not abuse its discretion by denying Adler’s motion for
reconsideration.
AFFIRMED.
9