Highland Captl v. Highland Captl Mgmt ( 2023 )


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  • Case: 22-10189     Document: 00516606273         Page: 1    Date Filed: 01/11/2023
    United States Court of Appeals
    for the Fifth Circuit
    United States Court of Appeals
    Fifth Circuit
    FILED
    January 11, 2023
    No. 22-10189                         Lyle W. Cayce
    Clerk
    In the Matter of Highland Capital Management, L.P.
    Debtor,
    Highland Capital Management Fund Advisors, L.P.;
    NexPoint Advisors, L.P.; The Dugaboy Investment
    Trust,
    Appellants,
    versus
    Highland Capital Management, L.P.,
    Appellee.
    Appeal from the United States District Court
    for the Northern District of Texas
    USDC No. 3:21-CV-1895
    Before King, Stewart, and Haynes, Circuit Judges.
    King, Circuit Judge:
    Following the bankruptcy court’s confirmation of its reorganization
    plan, Highland Capital Management, L.P. filed a motion with the bankruptcy
    court seeking entry of an order authorizing the creation of an indemnity sub-
    trust. Over several objections, the bankruptcy court entered an order
    Case: 22-10189     Document: 00516606273           Page: 2   Date Filed: 01/11/2023
    No. 22-10189
    approving the motion. Several objectors appealed, arguing that the order
    impermissibly modified the plan. The district court affirmed the bankruptcy
    court’s order and dismissed several of the appellants from the appeal. The
    appellants then sought review in this court. We DISMISS IN PART the
    appeal and AFFIRM the district court’s judgment.
    I.
    A. The Parties
    Highland Capital Management, L.P. (“Highland Capital”) was co-
    founded in 1993 by James Dondero and Mark Okada. It was a multibillion-
    dollar global investment advisor that operated through a complex set of
    entities doing business under the Highland umbrella. Prior to plan
    confirmation, Appellant Dugaboy Investment Trust (“Dugaboy”), a trust
    created to manage some of Dondero’s assets, possessed a fractional
    (0.1866%) limited partnership interest in Highland Capital; this interest was
    canceled under the confirmed plan.
    Dondero also manages the other appellants, which were two of
    Highland Capital’s clients—Highland Capital Management Fund Advisors,
    L.P. (“HCMFA”) and NexPoint Advisors, L.P. (“NexPoint”). Like
    Highland Capital, HCMFA and NexPoint serviced and advised large,
    publicly traded investment funds.
    B. The Reorganization Plan
    In October 2019, Highland Capital filed for Chapter 11 bankruptcy in
    the District of Delaware due to significant business litigation claims that it
    faced. In December 2019, the bankruptcy court transferred the case to the
    Northern District of Texas.
    The reorganization of Highland Capital was negotiated by a four-
    member Unsecured Creditors’ Committee (the “Committee”). Early in this
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    process, the Committee sought to appoint a Chapter 11 trustee due to its
    concerns over and distrust of Dondero. After many weeks of negotiation, the
    Committee and Dondero reached a corporate governance settlement
    agreement whereby Dondero relinquished control of Highland Capital and
    resigned his positions as an officer and director. As part of the settlement,
    three independent directors were chosen to carry Highland Capital through
    reorganization. The bankruptcy court approved the settlement in January
    2020. It later appointed James Seery, Jr., one of the independent directors,
    as Highland Capital’s Chief Executive Officer, among other titles.
    In August 2020, the independent directors, with the support of the
    Committee, filed the Fifth Amended Plan of Reorganization of Highland
    Capital Management, L.P. (the “Plan”). This court previously sketched the
    basic structure of the Plan:
    The Plan works like this: It dissolves the Committee, and
    creates four entities—the Claimant Trust, the Reorganized
    Debtor, HCMLP GP LLC, 1 and the Litigation Sub-Trust.
    Administered by its trustee Seery, the Claimant Trust
    “wind[s]-down”          Highland       Capital’s    estate   over
    approximately three years by liquidating its assets and issuing
    distributions to class-8 and -9 claimants as trust beneficiaries.
    Highland Capital vests its ongoing servicing agreements with
    the Reorganized Debtor, which “among other things”
    continues to manage the CLOs [collateral loan obligations] and
    other investment portfolios. The Reorganized Debtor’s only
    general partner is HCMLP GP LLC. And the Litigation Sub-
    1
    The Plan calls this entity “New GP LLC,” but it was later named HCMLP GP
    LLC. For the sake of clarity, we use HCMLP GP LLC.
    3
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    Trust resolves pending claims against Highland Capital under
    the direction of its trustee Marc Kirschner.
    The whole operation is overseen by a Claimant Trust
    Oversight Board (the “Oversight Board”) comprised of four
    creditor representatives and one restructuring advisor. The
    Claimant Trust wholly owns the limited partnership interests
    in the Reorganized Debtor, HCMLP GP LLC, and the
    Litigation Sub-Trust. The Claimant Trust (and its interests)
    will dissolve either at the soonest of three years after the
    effective date (August 2024) or (1) when it is unlikely to obtain
    additional proceeds to justify further action, (2) all claims and
    objections are resolved, (3) all distributions are made, and (4)
    the Reorganized Debtor is dissolved.
    NexPoint Advisors, L.P. v. Highland Cap. Mgmt. L.P. (In re Highland Cap.
    Mgmt., L.P.), 
    48 F.4th 419
    , 426–27 (5th Cir. 2022) (footnote omitted).
    The Plan also includes several conditions precedent that may be
    waived in whole or in part by Highland Capital, including a condition that
    Highland Capital shall obtain directors’ and officers’ (“D&O”) insurance
    coverage acceptable to it, the Committee, the Oversight Board, the Claimant
    Trustee, and the Litigation Trustee. The bankruptcy court found that the
    absence of such insurance, which protects the personal assets of directors and
    officers against lawsuits arising from actions taken as part of their duties,
    would present unacceptable risks to parties, like the independent directors,
    because of Dondero’s continued litigiousness.
    In February 2021, the bankruptcy court confirmed the Plan over
    several remaining objections by Dondero and Dondero-owned or -controlled
    entities. The confirmation order roundly criticized Dondero’s behavior
    before and during the bankruptcy proceedings and deduced that Dondero
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    was a serial litigator whose objections to the Plan were not made in good faith.
    
    Id. at 428
    . It also approved the Plan’s voting and confirmation procedures
    and its treatment of dissenting classes, and held that the Plan complied with
    the statutory requirements for confirmation. 
    Id.
     Dondero and a web of
    Highland-related entities moved to directly appeal the confirmation order to
    this court, which the bankruptcy court granted. 
    Id.
     In September 2022, we
    affirmed the Plan in all respects except one, concluding that the Plan
    exculpated certain non-debtors beyond the bankruptcy court’s authority. 
    Id. at 429
    .
    C. The Indemnity Sub-Trust Motion
    While that appeal was ongoing, disputes surrounding the Plan’s
    implementation continued before the bankruptcy court. According to Seery,
    the appeal of the confirmation order made it more difficult for Highland
    Capital to secure D&O insurance because of the additional risk it presented.
    The only D&O insurance that Highland Capital could have secured at that
    time was, in Seery’s view, insufficient because of its coverage gaps and cost.
    Highland Capital and the Committee decided to investigate alternative
    structures, and they determined that the Indemnity Sub-Trust would provide
    the same protections as the D&O insurance considered by the Plan.
    On June 25, 2021, Highland Capital filed a motion with the bankruptcy
    court for entry of an order authorizing the creation of the Indemnity Sub-
    Trust. The Indemnity Sub-Trust was contemplated as a mechanism to
    secure the indemnity obligations of the Claimant Trust, the Litigation Trust,
    and the Reorganized Debtor, serving as a source of claim indemnification
    only in the event that one of these entities did not pay such claims. Under the
    proposal, the Claimant Trust would fund the Indemnity Sub-Trust with $2.5
    million in cash and a funding note in the amount of $22.5 million. The
    Claimant Trust, the Litigation Sub-Trust, and the Reorganized Debtor
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    would be jointly and severally liable for the indebtedness evidenced by the
    note.
    Dugaboy, NexPoint, and HCMFA (collectively, “Appellants”), as
    well as Dondero, objected to the motion, arguing that it was a modification to
    the Plan requiring solicitation, voting, and confirmation under § 1127(b) of
    the Bankruptcy Code. The bankruptcy court disagreed and granted the
    motion in an order authorizing the creation of the Indemnity Sub-Trust on
    July 21, 2021 (the “Order”). It determined that the creation of the Indemnity
    Sub-Trust was within the literal terms of the Plan because the Plan
    “contained a provision addressing that a reserve might be established for
    potential indemnification claims”; the Claimant Trust Agreement, the
    Litigation Trust Agreement, and the Limited Partnership Agreement for the
    Reorganized Debtor contemplated it; and the Indemnity Sub-Trust was not
    “materially astray from the concepts built into the plan.” It concluded that
    the Indemnity Sub-Trust was within the bounds of the Plan and thus not a
    modification. Lastly, it held that the creation of the Indemnity Sub-Trust was
    a valid exercise of business judgment as required by § 363(b)(1) of the
    Bankruptcy Code.
    D. The Appeal
    Appellants appealed the Order to the district court, arguing that it was
    an impermissible Plan modification. Highland Capital moved to dismiss the
    appeal as equitably and constitutionally moot.
    The district court dismissed the appeal in part for lack of prudential
    standing and affirmed the Order on January 28, 2022. It held that HCMFA
    and Dugaboy lacked standing and dismissed their appeals, but it reached the
    merits of Appellants’ claim because NexPoint possessed standing. On the
    merits, the district court held that the Order was not a modification because
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    it did not alter the parties’ rights, obligations, and expectations under the
    Plan.
    Appellants timely appealed to this court, contesting the district
    court’s ruling that the Order was not a Plan modification and that HCMFA
    and Dugaboy lacked standing to pursue the appeal. Highland Capital argues
    that the Order did not modify the Plan and that HCMFA and Dugaboy failed
    to preserve for appellate review the district court’s dismissal of their appeal.
    II.
    “We review the decision of a district court, sitting in its appellate
    capacity, by applying the same standards of review to the bankruptcy court’s
    finding of fact and conclusions of law as applied by the district court.”
    ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 
    650 F.3d 593
    , 600
    (5th Cir. 2011). We review the bankruptcy court’s conclusions of law, as well
    as mixed questions of law and fact, de novo, and the bankruptcy court’s
    findings of fact for clear error. Id. at 601. We review issues of standing de novo.
    Dean v. Seidel (In re Dean), 
    18 F.4th 842
    , 844 (5th Cir. 2021).
    III.
    Bankruptcy Rule 8009—previously Rule 8006—requires that, in an
    appeal to a district court or bankruptcy appellate panel, “[t]he appellant must
    file with the bankruptcy clerk and serve on the appellee a designation of the
    items to be included in the record on appeal and a statement of the issues to
    be presented.” Fed. R. Bankr. P. 8009(a)(1)(A). A similar rule governs
    appeals from a district court to an appellate court in bankruptcy cases and
    requires that “the appellant must file with the clerk possessing the record
    assembled in accordance with Bankruptcy Rule 8009—and serve on the
    appellee—a statement of the issues to be presented on appeal and a
    designation of the record to be certified and made available to the circuit
    clerk.” Fed. R. App. P. 6(b)(2)(B)(i). We have previously held that, “even
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    if an issue is argued in the bankruptcy court and ruled on by that court, it is
    not preserved for appeal under Bankruptcy Rule 8006 unless the appellant
    includes the issue in its statement of issues on appeal.” Smith ex rel. McCombs
    v. H.D. Smith Wholesale Drug Co. (In re McCombs), 
    659 F.3d 503
    , 510 (5th Cir.
    2011) (quoting Zimmermann v. Jenkins (In re GGM, P.C.), 
    165 F.3d 1026
    ,
    1032 (5th Cir. 1999)). In such cases, “[t]he issue is waived on subsequent
    appeal to the Fifth Circuit, even if the issue was argued before the district
    court.” 
    Id.
    Appellants timely filed a statement of the issues on appeal, which we
    must consider to determine whether they properly preserved for appeal the
    issues and arguments contained in their briefs. Appellants’ statement of the
    issues on appeal presents the following issues:
    1.      Whether the District Court erred by affirming the Order
    Approving Debtor’s Motion for Entry of an Order (I) Authorizing
    the (A) Creation of an Indemnity Subtrust and (B) Entry into an
    Indemnity Trust Agreement and (II) Granting Related Relief (the
    “Order”), entered by the Bankruptcy Court on July 21, 2021
    in the above captioned bankruptcy case.
    2.      Whether the relief requested and granted in the Debtor’s
    Motion for Entry of an Order (I) Authorizing the Debtor to (A)
    Enter into Exit Financing Agreement in Aid of Confirmed Chapter
    11 Plan and (B) Incur and Pay Related Fees and Expenses, and (III)
    Granting Related Relief (the “Motion”) constituted a plan
    modification.
    3.      Whether the relief requested and granted in the Motion
    satisfied the requirements of 
    11 U.S.C. §§ 1122
    , 1123, 1125 and
    1127.
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    4.      Whether the Bankruptcy Court otherwise erred by
    granting the Motion.
    By contrast, in their appellate brief Appellants state and argue, as
    relevant here, the following issue: “Whether the District Court erred by
    affirming the Indemnity Trust Order, entered by the Bankruptcy Court on
    July 21, 2021, including, without limitation, by (a) holding that the Indemnity
    Trust Order did not effectuate a plan modification; and (b) holding that
    HCMFA lacked standing to appeal.” 2
    The parties dispute whether Appellants preserved issue (b) in their
    appellate brief, namely the issue of the district court’s dismissal of the appeal
    as to Dugaboy and HCMFA for lack of standing. Highland Capital asserts
    that Appellants have not preserved this issue for appeal because they did not
    mention this issue in their statement of the issues on appeal. We agree. As we
    have previously held, “the rules regarding preservation of issues on appeal in
    bankruptcy cases apply with equal force regardless of whether the appeal is
    from the bankruptcy court to the district court . . . from the district court to
    the court of appeals . . . or from the bankruptcy court to the court of
    appeals”—in other words, Appellants’ “statement of issues must be
    considered to determine whether [they] properly preserved for appeal the
    issues and arguments contained in [their] brief.” 
    Id. at 511
    .
    As relevant here, Appellants’ statement of the issues on appeal
    includes the district court’s affirmance of the Order; however, it does not
    include the district court’s partial dismissal of the appeal on the basis that
    HCMFA and Dugaboy lacked standing. These are separate issues—in fact,
    they are separate decrees—and Appellants’ statement of the issues on appeal
    2
    In separate briefing, Dugaboy challenged solely the portion of the district court’s
    opinion holding that Dugaboy lacked standing to pursue the appeal.
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    does not fairly encompass the separate issue of the district court’s dismissal
    for lack of standing. See Galaz v. Katona (In re Galaz), 
    841 F.3d 316
    , 324–25
    (5th Cir. 2016) (rejecting the notion that we should construe the statement
    of the issues on appeal broadly). Therefore, Appellants did not preserve for
    appeal a challenge to the district court’s partial dismissal below for lack of
    standing. The appeals of HCMFA and Dugaboy remain dismissed below and,
    for this reason, they must be dismissed from the current appeal as well.
    Unlike HCMFA and Dugaboy, NexPoint was not dismissed from the
    appeal below. The district court determined that NexPoint had standing to
    pursue the appeal, and the parties do not contest this issue. Nonetheless, we
    may consider prudential standing issues sua sponte. Bd. of Miss. Levee
    Comm’rs v. EPA, 
    674 F.3d 409
    , 417–18 (5th Cir. 2012). “[S]tanding to appeal
    a bankruptcy court order is, of necessity, quite limited.” In re Dean, 18 F.4th
    at 844 (quoting Furlough v. Cage (In re Technicool Sys., Inc.), 
    896 F.3d 382
    , 385
    (5th Cir. 2018)). This circuit uses the “person aggrieved” standard to
    determine whether a party has standing to appeal a bankruptcy court order.
    Id.; see also Gibbs & Bruns LLP v. Coho Energy Inc. (In re Coho Energy Inc.), 
    395 F.3d 198
    , 202 (5th Cir. 2004). This standard “is an even more exacting
    standard than traditional constitutional standing,” In re Dean, 18 F.4th at 844
    (quoting Fortune Nat. Res. Corp. v. U.S. Dep’t of Interior, 
    806 F.3d 363
    , 366
    (5th Cir. 2015)), as it requires an appellant to show she is “directly, adversely,
    and financially impacted by a bankruptcy order,” 
    id.
     (quoting In re Technicool,
    896 F.3d at 384). When this appeal was initiated, NexPoint possessed the
    claim of Hunter Covitz valued at $250,000. 3 This claim, though small,
    3
    The claim was disallowed and expunged by the bankruptcy court on January 13,
    2022. However, this order has been appealed, and the district court reviewing the order
    disallowing this claim has not yet issued a ruling. For this reason, the bankruptcy court’s
    order is not final, and NexPoint still possesses the claim for the purposes of this appeal. Cf.
    Travelers Indem. Co. v. Bailey, 
    557 U.S. 137
    , 148 (2009) (holding that a bankruptcy court
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    requires the Claimant Trust to reserve funds against it, which makes
    NexPoint a person aggrieved by the Order. Accordingly, NexPoint has
    standing, and we proceed to the merits.
    IV.
    Appellants argue that the Order impermissibly effectuated a
    modification to the Plan previously approved by the bankruptcy court. We
    disagree and affirm.
    Under § 1127(b) of the Bankruptcy Code, “the reorganized debtor
    may modify such plan at any time after confirmation of such plan and before
    substantial consummation of such plan,” if “the court, after notice and a
    hearing, confirms such plan as modified, under section 1129 of this title.” 
    11 U.S.C. § 1127
    (b). Plan modifications must comply with § 1125, which
    requires disclosure to claimholders and solicitation of their acceptance or
    rejection of the proposed modifications. Id. §§ 1125, 1127(c). Of course, not
    every proposed post-confirmation action by the reorganized debtor is a plan
    modification.      Although       the     Bankruptcy       Code      does     not     define
    “modification,” we have previously held that post-confirmation proposals
    constitute modifications in cases where they “would alter the parties’ rights,
    obligations, and expectations under the plan.” U.S. Brass Corp. v. Travelers
    Ins. Grp. (In re U.S. Brass Corp.), 
    301 F.3d 296
    , 309 (5th Cir. 2002).
    Appellants argue that the Order alters the parties’ rights, obligations,
    and expectations under the Plan in three ways: first, the Order requires the
    Claimant Trust to indemnify numerous parties beyond those authorized by
    order becomes final “on direct review” by the district court); Okla. State. Treasurer v. Linn
    Operating, Inc. (In re Linn Energy, L.L.C.), 
    927 F.3d 862
    , 866 (5th Cir. 2019) (describing
    final bankruptcy orders as “orders that are affirmed upon direct review, or . . . not appealed
    or contested”).
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    the Plan; second, the creation of a trust is different from the establishment of
    a reserve and is thus not contemplated by the Plan; and third, Highland
    Capital’s filing of the motion with the bankruptcy court necessarily admits
    that it sought to modify the Plan. But Appellants agree that, if the motion is
    not a Plan modification, then the bankruptcy court properly exercised its
    discretion to enter the Order.
    Highland Capital disagrees and instead characterizes the Order as one
    of several permissible ways it could have implemented the Plan. In its view,
    the Indemnity Sub-Trust accomplishes the same objective as D&O insurance
    and does not alter any party’s rights, obligations, or expectations under the
    Plan.
    The Claimant Trust Agreement, which was incorporated into and
    fully enforceable under the Plan, outlines several parties that shall be
    indemnified by the Claimant Trust: the Claimant Trustee, the Delaware
    Trustee, 4 the Oversight Board, and all past and present members of the
    Oversight Board. Appellants argue that the Plan permits the Claimant Trust
    to indemnify only these parties, while the Order requires the Claimant Trust
    to also indemnify the Reorganized Debtor’s professionals, officers, and
    employees. Greater indemnification obligations, they contend, risk reducing
    creditor recoveries because they entangle the Claimant Trust’s assets with
    the Reorganized Debtor’s post-confirmation activity. 5 Even if the Indemnity
    Sub-Trust does not indemnify the Reorganized Debtor’s professionals,
    4
    The Delaware Trustee has the power and authority to accept legal process served
    on the Claimant Trust in Delaware and to execute and file any required certificates with
    Delaware’s Office of the Secretary of State.
    5
    Appellants and Highland Capital agree that the Claimant Trust is authorized to
    indemnify the parties indemnified under the Litigation Sub-Trust Agreement, who are also
    beneficiaries under the Indemnity Sub-Trust.
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    officers, and employees, Appellants contend that up to $25 million of creditor
    recoveries will be irrevocably transferred to the Indemnity Sub-Trust in favor
    of these potential obligations.
    However, the Plan approves of such asset sharing; the Claimant
    Trust’s assets may be employed for the benefit of the Reorganized Debtor
    without any relevant limitations. Under the Claimant Trust Agreement, the
    Claimant Trust is permitted to withhold funds from disbursement that,
    among other things, are “necessary to pay or reserve for reasonably incurred
    or anticipated Claimant Trust Expenses and any other expenses incurred by
    the Claimant Trust.” Claimant Trust Expenses encompass the “costs,
    expenses, liabilities, and obligations incurred by the Claimant Trust and/or
    the Claimant Trustee in administering and conducting the affairs of the
    Claimant Trust, and otherwise carrying out the terms of the Claimant Trust
    and the Plan on behalf of the Claimant Trust.” As part of its duties under the
    Plan, 6 the Claimant Trust may “make additional capital contribution to the
    Partnership,” which includes the Reorganized Debtor, if requested by
    HCMLP GP LLC, which itself is wholly owned by the Claimant Trust. The
    Plan contains no limitations on such capital contributions in either amount or
    purpose. Separately, the Plan requires the Claimant Trustee to “exercise and
    perform the rights, powers, and duties arising from the Claimant Trust’s
    role” as sole member of HCMLP GP LLC and HCMLP GP LLC’s role as
    general partner of the Reorganized Debtor. Such duties include, as relevant
    here, calling capital from the Claimant Trust to the Reorganized Debtor as
    necessary. Therefore, the Claimant Trust may contribute capital to the
    Reorganized      Debtor     for   any    purpose,    including     indemnification.
    Accordingly, creditors face no greater risk of lost recoveries following the
    6
    The Reorganized LP Agreement, which lists this requirement, was incorporated
    by reference into the Plan.
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    Order than they did under the Plan; the Plan always permitted the Claimant
    Trust to use its assets in this manner. 7
    Appellants also argue that the Plan did not sanction the creation of the
    Indemnity Sub-Trust. They concede that the Plan allows the Claimant Trust
    to establish a reserve but aver that the Indemnity Sub-Trust goes far beyond
    that allowance. In their view, the Indemnity Sub-Trust grants extraneous
    relief not contemplated by the Plan in several respects: it involves appointing
    a corporate trustee, who receives indemnification; the Indemnity Trust
    Administrator may hire her own financial and legal professionals, and the
    Claimant Trust must pay their fees; beneficiaries have no rights with respect
    to the administration of the Indemnity Sub-Trust; and it eliminates the
    Oversight Board’s authority over investments held by the Indemnity Sub-
    Trust.
    These arguments are unavailing. The Plan allows for the creation of a
    reserve and contemplates the use of D&O insurance to provide collateral
    security supporting the indemnification obligations it outlines. The
    Indemnity Sub-Trust serves the same purpose and is one of several ways
    Highland Capital could, as the Plan demands, “reserve or retain any
    cash . . . reasonably necessary to meet claims and contingent liabilities,”
    including indemnification obligations. By arguing that the Plan did not permit
    the creation of the Indemnity Sub-Trust, Appellants seek to restrain
    Highland Capital’s exercise of its authority to those actions clearly defined in
    the Plan. However, that is not the proper inquiry. Instead, we must determine
    7
    For this reason, Appellants’ arguments regarding the irrevocability of the
    Claimant Trust’s $25 million in funding to the Indemnity Sub-Trust are without merit.
    Even so, the funds are not irrevocable. Once all indemnification rights—which are senior
    priority obligations to distributions to the Claimant Trust’s beneficiaries—have expired,
    the funds are transferred back to the Claimant Trust.
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    whether the use of the Indemnity Sub-Trust, as opposed to a reserve or D&O
    insurance, alters the parties’ rights, obligations, and expectations. In re U.S.
    Brass, 301 F.3d at 309.
    In U.S. Brass, we considered a confirmed plan of reorganization that
    provided certain claims “would be resolved in a court of competent
    jurisdiction and determined by settlement or final judgment” and a
    subsequent proposed agreement “to liquidate the claims through binding
    arbitration.” Id. at 299. We held that the proposed agreement constituted a
    plan modification for several reasons. Under the plan, the requirement to
    resolve claims by settlement or final judgment minimized the risk of
    collusion, whereas arbitration would allow parties to “collusively generate a
    binding award that is inconsistent with the facts and applicable law” of the
    approved plan. Id. at 308. Moreover, arbitration of claims was not
    contemplated and negotiated by the parties at plan confirmation—in fact, the
    insurers were actively concerned with collusive behavior among parties
    during plan negotiations, and the bankruptcy court decided not to confirm
    the plan until insurers were satisfied with the plan and withdrew their
    objections. Id. In short, the parties specifically bargained for the right to
    litigate or settle their claims, and arbitration undercut those bargained-for
    rights. For that reason, we ruled that the proposed agreement constituted a
    plan modification.
    Here, the record shows that securing funds for indemnification
    obligations was particularly important for agreement to the Plan. The Plan
    includes D&O insurance as a waivable condition precedent, and the
    condition was waived only upon approval of the motion seeking authorization
    for the creation of the Indemnity Sub-Trust. In Seery’s words, it was crucial
    that the parties “could reserve for, protect, and indemnify the
    indemnification obligations that each of the trusts and the Reorganized
    Debtor have to those running it.” But the mechanism for providing collateral
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    security was not clearly defined as part of the Plan—D&O insurance was one
    option, but it also more generally permitted the Claimant Trust to reserve
    funds for indemnification obligations. The precise contours of the collateral
    mechanism were not a “bargain” won during Plan negotiations. See In re U.S.
    Brass, 301 F.3d at 308. Rather, indemnification was the bargained-for
    requirement, and the details were left to be determined. As previously
    explained, the Order does not alter the parties’ rights, obligations, or
    expectations under the Plan because the Plan permits the Claimant Trust to
    contribute capital to the Reorganized Debtor for indemnification.
    Moreover, the supposed extraneous relief created by the Indemnity
    Sub-Trust is nothing new. The Indemnity Sub-Trust is an agent of the
    Claimant Trust, so its employees and appointees are contemplated by the
    Plan and have rights to payment and indemnification. Indemnification
    beneficiaries would have no rights with respect to the indemnity funds
    regardless of whether they were held by the Indemnity Sub-Trust or the other
    post-confirmation entities. And while the Oversight Board must approve the
    investment of Claimant Trust Assets (as defined in the Plan), it is not obvious
    that this includes assets transferred to other entities such as the Indemnity
    Sub-Trust. Even if it does, Appellants have failed to explain how this alters
    the rights, obligations, or expectations of the parties; absent Oversight Board
    approval, the Plan still strictly limits how assets may be invested.
    Lastly, Appellants question why Highland Capital filed the motion in
    the first place, suggesting that there is no reason to file a motion with the
    bankruptcy court unless the requested relief somehow modifies the Plan. For
    this argument, they rely upon our statement in U.S. Brass that, “if the
    agreement is indeed consistent with the plan, the question becomes
    why . . . file the motion for approval.” 301 F.3d at 307. Highland Capital
    answered this question at oral argument. In its view, proceeding by motion
    during the period between confirmation and the effective date is not unusual.
    16
    Case: 22-10189     Document: 00516606273            Page: 17    Date Filed: 01/11/2023
    No. 22-10189
    Nor was it unique in this case: during that period, Highland Capital filed a
    motion for exit financing with the bankruptcy court, and it was approved. We
    are satisfied by this explanation in light of the circumstances of this case.
    V.
    For the foregoing reasons, the appeal is DISMISSED IN PART
    and the judgment of the district court is AFFIRMED.
    17