Dynasty Oil & Gas v. Citizen Bank ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 12, 2008
No. 07-51074 Charles R. Fulbruge III
Clerk
IN THE MATTER OF: UNITED OPERATING, LLC
Debtor
———————————
DYNASTY OIL AND GAS, LLC
Appellant
v.
CITIZENS BANK; CHARLES SPRADLIN; WILDCAT ENERGY, LLC;
ROGER L. BECKER
Appellees
Appeal from the United States District Court
for the Western District of Texas
Before JONES, Chief Judge and WIENER and CLEMENT, Circuit Judges.
EDITH H. JONES, Chief Judge:
Dynasty Oil and Gas (“Dynasty”) survived as a shell corporation after all
of its assets were liquidated in a Chapter 11 bankruptcy. The bankruptcy court
granted summary judgment against Dynasty’s post-confirmation attempt to sue
the Appellees for their alleged mismanagement of its property during the
reorganization. We affirm the judgment for the following reasons.
No. 07-51074
BACKGROUND
In early 2004, Dynasty filed a Chapter 11 bankruptcy case. At the time
of filing Dynasty owned several oil and gas properties, which had been out of
production since late 2003. Citizens Bank (“Citizens”), Dynasty’s largest single
creditor, moved the court to appoint an operator to bring Dynasty’s properties
back into production. On Citizens’ motion, the court appointed Wildcat Energy,
LLC (“Wildcat”) and Wildcat’s manager and principal, Roger Becker, to operate
Dynasty’s oil and gas wells. Citizens was authorized to pay Wildcat’s fees and
expenses out of the debtor-in-possession account. Wildcat was responsible for
operations for approximately seven months, from April 2004 until the
confirmation of the Chapter 11 plan (“Plan”) in November 2004.
The Plan authorized another creditor, Saber Resources, LLC (“Saber”), to
purchase all of Dynasty’s assets in exchange for a lump-sum payment to Citizens
in the amount of $2.5 million. Other unsecured creditors received cents on the
dollar, and Dynasty’s equity holders were allocated nothing, because the estate
lacked sufficient funds to pay all claims in full. Though Dynasty had been a
debtor-in-possession, the Plan specified that Dynasty would not be revested with
title to any estate assets at confirmation, because Saber was purchasing
substantially all of Dynasty’s assets. The Plan nonetheless provided that
Dynasty and the Official Unsecured Creditors’ Committee (“Committee”)
retained limited powers to pursue some claims on behalf of the estate.
After the Plan was confirmed, in February 2005, the Creditors’ Committee
filed suit against Citizens and Wildcat (the “First Action”). The First Action
complaint alleged various claims under state law and the Bankruptcy Code (the
“Code”). Among other things, the Committee claimed that Wildcat completed
unnecessary work on various wells, and that Citizens wrongfully paid for this
work, needlessly depleting the balance of the debtor-in-possession account. The
court dismissed the Committee’s state-law claims under Rule 12(b)(6).
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No. 07-51074
Thereafter, Wildcat was dismissed from the suit, and the remaining claims
arising under the Code were settled.
In March 2006, Dynasty filed the present action in Texas state court (the
“Second Action”), naming as defendants Citizens and Wildcat, as well as Roger
Becker, Wildcat’s principal, and Charles Spradlin, a loan officer with Citizens.
The Second Action petition states common-law claims against the Appellees for,
inter alia, failing to complete necessary work on some wells, completing
unnecessary work on other wells, and misrepresentation. Appellees removed the
Second Action, with no objection from Dynasty, to the district court, and the
district court referred the matter to the bankruptcy court. The bankruptcy
court, concluding that Dynasty’s claims in the Second Action were barred by the
resolution of the First Action, granted summary judgment to the Appellees on
the basis of res judicata and collateral estoppel. The district court affirmed the
bankruptcy court’s decision on both grounds, and Dynasty appeals.
DISCUSSION
It is unnecessary for us to reach the questions of res judicata or collateral
estoppel, because this case turns on the more fundamental question of Dynasty’s
standing. Standing is a jurisdictional requirement, and we are obliged to ensure
it is satisfied regardless whether the parties address the matter. Lang v.
French, 154 F.3d 217, 222 n.28 (5th Cir. 1998). Here, the question is whether
Dynasty, a reorganized debtor, has standing to pursue claims based on the
Appellees’ pre-confirmation management of the estate’s assets. We conclude it
does not.1
During its Chapter 11 case, Dynasty, as a debtor-in-possession, had most
of the powers of a bankruptcy trustee to pursue claims on behalf of the estate.
1
Because federal courts lack jurisdiction on the basis of Dynasty’s lack of standing, we
need not consider whether the bankruptcy court has subject matter jurisdiction over a state-
law controversy, albeit one related to the estate’s administration.
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No. 07-51074
11 U.S.C. § 1107(a). Upon confirmation of the plan, the estate ceased to exist,
and Dynasty lost its status as a debtor “in possession.” 11 U.S.C. § 1101(1);
In re Grinstead, 75 B.R. 2, 3 (Bankr. D. Minn. 1985). At that time, Dynasty’s
authority to pursue claims as though it were a trustee also expired. In re
Ice Cream Liquidation, Inc., 319 B.R. 324, 333 (Bankr. D. Conn. 2005)
(debtor-in-possession status, along with the relevant powers of a trustee, “ceases
on the effective date of a confirmed plan”).
Nonetheless, in some cases the Code allows a reorganized debtor to bring
a post-confirmation action on a “claim or interest belonging to the debtor or to
the estate.” 11 U.S.C. § 1123(b)(3). A debtor may preserve its standing to bring
such a claim (e.g., for fraud or breach of fiduciary duty,2 or to avoid a preferential
transfer3) but only if the plan of reorganization expressly provides for the claim’s
“retention and enforcement by the debtor.” § 1123(b)(3)(B). “After 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 plan.” In re Paramount Plastics,
Inc., 172 B.R. 331, 333 (Bankr. W.D. Wash. 1994); see also In re Tex. Gen. Petrol.
Corp., 52 F.3d 1330, 1335 n.4 (5th Cir. 1995) (citing Harstad, 39 F.3d at 902-03).
For a debtor to preserve a claim, “the plan must expressly retain the right
to pursue such actions.” Paramount, 172 B.R. at 333. The reservation must be
“specific and unequivocal.” Harstad, 39 F.3d at 902; see also Ice Cream, 319 B.R.
at 337-38 (holding that the plan’s categorical reservation of “preference” claims
was sufficiently specific; plan need not itemize individual transfers that may be
pursued as preferential). 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
2
In re Avado Brands, Inc., 358 B.R. 868, 883 (Bankr. N.D. Tex. 2006).
3
Harstad v. First American Bank, 39 F.3d 898, 901-02 (8th Cir. 1994)
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designed primarily to “secure prompt, effective administration and settlement
of all debtor’s assets and liabilities within a limited time.” In re Kroh Bros.
Dev. Co., 100 B.R. 487, 495 (Bankr. W.D. Mo. 1989) (internal citation omitted).
To facilitate this timely, comprehensive resolution of an estate, a debtor must
put its creditors on notice of any claim it wishes to pursue after confirmation.
Harstad, 39 F.3d at 903 (“We view § 1123(b)(3) as, at least in part, a notice
provision.”). Proper notice allows creditors to determine whether a proposed
plan resolves matters satisfactorily before they vote to approve it — “absent
‘specific and unequivocal’ retention language in the plan, creditors lack sufficient
information regarding their benefits and potential liabilities to cast an
intelligent vote.” Paramount, 172 B.R. at 334.
Here Dynasty alleges, in short, that if the Appellees had discharged their
duties properly, Dynasty’s wells would have been more productive at a lower
cost, leaving more money in the debtor-in-possession account and commanding
a higher purchase price from Saber. Dynasty did not preserve its right to pursue
these claims post-confirmation. Neither the Plan’s blanket reservation of “any
and all claims” arising under the Code, nor its specific reservation of other types
of claims under various Code provisions are sufficient to preserve the common-
law claims Dynasty now brings for, inter alia, fraud, breach of fiduciary duty,
and negligence. See Paramount, 172 B.R. at 335 (no standing to pursue
preference action where preference actions were not preserved in the plan);
Ice Cream, 319 B.R. at 333 (no standing to pursue turnover actions because the
plan “made no mention” of them). Nor can the bankruptcy court’s retention of
jurisdiction over a given type of claim preserve a debtor’s standing to pursue it.
Harstad, 39 F.3d at 902.
If Dynasty had wanted to bring a post-confirmation action for mal-
administration of the estate’s property during the bankruptcy, it was required
to state as much clearly in the Plan. Had that been the case, the creditors could
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No. 07-51074
have reviewed the possible impact of future litigation on their claims and
liabilities before voting to confirm the Plan. As it happened, Dynasty did not
preserve those claims.4 The Plan has been confirmed and substantially
consummated; the estate no longer exists. Dynasty is without standing to assert
these claims.
Dynasty also lacks standing to pursue its misrepresentation claim.
Dynasty complains that Citizens agreed its claim against Dynasty would be
satisfied by Saber’s $2.5 million payment, yet the bank brought a subsequent
collection action against Dynasty’s guarantors. Dynasty, a discharged debtor,
has no standing to represent its guarantors, and has shown no injury of its own.
Dynasty has no liability on Citizens’ claim, nor is it potentially liable to its
guarantors for reimbursement of any payment they make to Citizens. During
the bankruptcy, Dynasty’s guarantors held a contingent claim against the estate,
which would have become fixed if and when they paid Citizens on the guarantee.
In re Boles, 150 B.R. 733, 736 (Bankr. W.D. Mo. 1993); Mid-State Fertilizer Co.
v. Exch. Nat’l Bank of Chi., 877 F.2d 1333, 1336 (7th Cir. 1989) (“Guarantors are
contingent creditors. If the firm stiffs a creditor, that creditor can collect from
the guarantor; the guarantor succeeds to the original creditor’s claim against the
firm.”) Dynasty’s liability to Citizens, including its contingent liability to its
guarantors on the same debt, was discharged in the bankruptcy. Dynasty has
no standing to raise this claim.
The bankruptcy court’s judgment in favor of the Appellees, affirmed by the
district court, is therefore AFFIRMED.
4
In fact, Dynasty sat by while the Creditors’ Committee pursued very similar, perhaps
identical, claims against the Appellees post-confirmation. This situation led to the bankruptcy
court’s adjudication of claim and issue preclusion.
6