Bankruptcy Trading & Investments L.L.C. v. Barnett Marine, Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 14, 2008
No. 07-30316 Charles R. Fulbruge III
Clerk
In The Matter Of: BARNETT MARINE, INC.
Debtor
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BANKRUPTCY TRADING & INVESTMENTS L.L.C.
Appellant
v.
BARNETT MARINE, INC.
Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
2:06-CV-3766
Before KING, DeMOSS and SOUTHWICK, Circuit Judges.
PER CURIAM:*
In this bankruptcy appeal, the purchaser of unsecured claims challenges
the bankruptcy court’s conclusion that the Chapter 11 reorganization plan
previously confirmed by the bankruptcy court barred its claim for post-petition
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
No. 07-30316
attorneys’ fees. Also challenged is the bankruptcy court’s refusal to allow this
same party to amend its pleadings to ask for sanctions. The district court was
presented these same issues and affirmed. In reviewing the errors alleged in the
appeal here, we find no basis to disturb that judgment. We affirm.
I. Interpreting the Plan
In 2003, Barnett Marine, Inc. (“Barnett”) filed for Chapter 11 bankruptcy
protection. Thereafter, Bankruptcy Trading & Investments, L.L.C. (“BTI”)
acquired eighteen unsecured claims in Barnett and became one of Barnett’s
largest unsecured creditors. BTI and Barnett filed competing reorganization
plans. Ultimately, the two parties reached a settlement agreement regarding
the treatment of BTI’s claims under the plan of reorganization. The settlement
agreement facilitated confirmation of Barnett’s proposed plan (the “Plan”).
Under the agreement, BTI would vote its unsecured claims in favor of the Plan
in exchange for Barnett’s promise to allow a substantial contribution claim and
to treat all of BTI’s unsecured claims as “allowed” claims under the Plan.
BTI alleges that, after the Plan was confirmed, Barnett breached the
settlement agreement by objecting to several of BTI’s unsecured claims. BTI
successfully litigated this matter before the bankruptcy court. However, the
bankruptcy court refused to award attorneys’ fees incurred by BTI in litigating
the unsecured claims because the Plan provided that “‘[c]laim’ shall mean a duly
listed or timely filed claim which is allowed in this proceeding, excluding
interest, attorney’s fees, late charges, and other similar charges.” The
bankruptcy court and the district court both found that this language barred the
attorneys’ fees award sought by BTI.
BTI argues that, although an unsecured creditor, it is entitled to collect
attorneys’ fees incurred while litigating the validity of its claims against Barnett
– a solvent debtor – under In re Continental, 110 B.R. 276 (Bankr. S.D. Tex.
1989). As the district court noted, the In re Continental court was not faced with
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a reorganization plan that excluded attorneys’ fees from the definition of “claim.”
BTI responds that the language of the Plan excludes only pre-petition attorneys’
fees and BTI is seeking post-petition attorneys’ fees incurred as a result of
Barnett’s post-petition breach of the settlement agreement.
The bankruptcy court and the district court found that the Plan’s language
clearly excluded all claims for attorneys’ fees, regardless of whether those fees
were incurred pre- or post-petition. In the past, this Court has usually reviewed
the interpretation of a confirmed plan de novo, employing traditional tools of
contract interpretation. In re Advisory Comm. of Major Funding Corp., 109 F.3d
219, 222 (5th Cir. 1997). The Court has also noted that a bankruptcy court’s
interpretation of a reorganization plan that it has confirmed is “entitled to
deference.” In re O’Connor, 258 F.3d 392, 401 (5th Cir. 2001). For purposes of
this appeal, we employ the more stringent de novo standard.
The bankruptcy and district courts’ interpretation of the Plan is
reasonable. The plain language of the Plan excludes attorneys’ fees from the
definition of “claim.” Nothing in the remaining portions of the Plan would render
this definition ambiguous. We are not persuaded by BTI that the modifiers
“duly listed” and “timely filed” render the definition ambiguous. Rather than
reading these phrases to create an implied dichotomy between pre- and post-
petition attorneys’ fees, the more natural reading of this language merely
conforms the Plan’s definition of “claim” with the Bankruptcy Code’s definition
of “claim.” See 11 U.S.C. § 521(a) and Fed. R. Bankr. P. 1007 (relating to
scheduling or “listing” of claims); Fed. R. Bankr. P. 3003(c) (relating to timely
filing of claims). Even if BTI’s claims for attorneys’ fees would have been
permitted under the Code and In re Continental, they are barred by the Plan.
II. The Motion to Amend
The bankruptcy court’s interpretation of the Plan did not leave Barnett
free to act with impunity in regard to post-confirmation matters. The
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bankruptcy rules provide for sanctions against parties who raise frivolous claims
or defenses. Fed. R. Bankr. P. 9011(b)-(c). Sanctions may include reasonable
attorneys’ fees incurred as a result of a violation of Bankruptcy Rule 9011. Id.
The imposition of sanctions is permissible only after a party has complied with
certain procedural safeguards, particularly the separate motion and 21-day “safe
harbor” requirements. See Elliott v. Tilton, 64 F.3d 213, 216 (5th Cir. 1995)
(compliance with procedural prerequisites of Federal Rule of Civil Procedure 11
is “mandatory” and failure to comply precludes award of attorneys’ fees).
BTI never complied with Bankruptcy Rule 9011, but argues that the issue
of whether Barnett had any nonfrivolous basis for objecting to its unsecured
claims was tried by consent in motions filed and hearings held before the
bankruptcy court. As such, BTI suggests that justice required the bankruptcy
court to grant leave to amend its pleadings to conform them to the evidence. See
Fed. R. Civ. P. 15(a)(2). The bankruptcy court rejected BTI’s motion to amend
because BTI failed to comply with Bankruptcy Rule 9011’s procedural
safeguards and BTI never urged a violation of the rule or requested an
imposition of sanctions during proceedings before the court.
“Whether leave to amend should be granted is entrusted to the sound
discretion of the district court, and that court’s ruling is reversible only for an
abuse of discretion.” Wimm v. Jack Eckerd Corp., 3 F.3d 137, 139 (5th Cir.
1993). Though the Federal Rules of Civil Procedure permit “liberal amendment,”
a court may deny a motion to amend where there is a “valid justification.”
Carroll v. Fort James Corp., 470 F.3d 1171, 1175 (5th Cir. 2006). Amendments
under Rule 15 should not be permitted where parties would be surprised by the
inclusion of new issues. 6A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY
KAY LANE, FEDERAL PRACTICE AND PROCEDURE § 1491 (2d ed. 1990). Permitting
an amendment under Rule 15 to include a retroactive request for sanctions
would surprise a party that is relying on the benefit of notice by separate motion
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and a “safe harbor” period before being subjected to sanctions. See Fed. R.
Bankr. P. 9011(c)(1)(A). This is a “valid justification” for denying BTI’s motion
to amend its pleadings. There was no abuse of discretion in this case.
The judgment of the district court is AFFIRMED.
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