Lothian Cassidy, L.L.C. v. Lothian Oil, Inc

Case: 11-51073 Document: 00512235809 Page: 1 Date Filed: 05/08/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 8, 2013
No. 11-51073 Lyle W. Cayce
Clerk
In the Matter of: LOTHIAN OIL, INC.,
Debtor
___________________________
ISRAEL GROSSMAN; LOTHIAN CASSIDY, L.L.C.; SHOSHANA TRUST;
ANNA MEISHER PENSION PLAN; YG TRUST; ET AL.,
Appellants Cross-Appellees
v.
THE BELRIDGE GROUP, Consisting of: Peninsula Fund, L.P.; Peninsula
Catalyst Fund, L.P., Peninsula Catalyst Fund (QP), L.P.; JVL Global Energy,
L.P.; JVL Global Energy, (QP), L.P., Belridge Energy Advisors, L.P.; Navitas
Fund, L.P.; and Paul B. Lloyd, Jr.; Michael Raleigh; Nawab Energy Partners,
L.P.; LOTHIAN OIL, INC.; LOTHIAN OIL (USA) INC.; LOTHIAN OIL
TEXAS I, INC.; LOTHIAN OIL TEXAS II, INC.; LOTHIAN OIL
INVESTMENTS I, INC.; LOTHIAN OIL INVESTMENTS II, INC.; LEAD I
JVGP, INC.,
Appellees Cross-Appellants
_____________________________
ANTI LOTHIAN BANKRUPTCY FRAUD COMMITTEE; ET AL.,
Appellants Cross-Appellees
v.
LOTHIAN OIL INC.,
Appellee Cross-Appellant
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Appeals from the United States District Court
for the Western District of Texas
USDC 7:10-CV-111
Before KING, HIGGINBOTHAM, and CLEMENT, Circuit Judges.
KING, Circuit Judge:*
Appellants/Cross-Appellees—the Anti-Lothian Bankruptcy Fraud
Committee, Israel Grossman, and other individuals and entities—challenge a
bankruptcy court’s order enjoining their prosecutions of two state-court actions.
The bankruptcy court reasoned that the state-court actions violated the plan
injunction in the bankruptcy proceeding of debtor Lothian Oil, Inc. and its
related corporate entities. The bankruptcy court later entered a contempt
judgment against Appellants/Cross-Appellees after finding that they had failed
to comply with the court’s injunction order. On appeal, the district court
affirmed the injunction relating to the later of the two state-court actions,
reversed the injunction relating to the earlier one, and reversed the contempt
judgment. Appellants/Cross-Appellees appeal the district court’s affirmance of
the injunction of the later state-court action. Appellees/Cross-Appellants
Belridge Group and the Lothian debtors appeal the reversal of the injunction of
the earlier state-court action and the reversal of the contempt judgment. For the
following reasons, we find that the bankruptcy court did not err in enjoining both
state-court actions and imposing sanctions. We accordingly affirm in part and
reverse in part the district court’s decision. Further, we remand with
instructions to clarify whether an isolated claim in the earlier state-court action
can proceed.
*
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.
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I. BACKGROUND
A. Lothian Oil, Inc. Bankruptcy Proceeding
On June 13, 2007, Lothian Oil, Inc., and its associated corporate entities
(collectively “Lothian”) filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code.1 On the same day, Lothian filed motions to approve
settlement agreements entered into with Appellee/Cross-Appellant Nawab
Energy Partners, L.P. (“Nawab”). The settlements resulted from lawsuits
initiated by Lothian to resolve disputes over certain Texas oil and gas properties
known as the “Casselman,” “Bohannon,” “Foster,” and “Cowden” properties, on
which a group of creditor companies (“Belridge Group”) sought to foreclose.2 A
fifth property—the “Nobles” property—later was purchased by Nawab at a
bankruptcy auction. The United States Bankruptcy Court for the Western
District of Texas approved the settlement agreements on July 16 (“2007
Compromise Orders”).
On June 27, 2008, the bankruptcy court entered an order confirming the
“Second Modified Amended Joint Plan of Liquidation of the Debtors” (“Plan”).
The Plan purported to “bind the Debtors and any creditor or equity holder of the
Debtor, whether or not the Claim or Interest of such Creditor or equity holder
is impaired under the Plan and whether or not such Creditor or equity holder
has accepted the Plan.” The Plan contained the following relevant provisions–
6.9 Preservation of Rights of Action:
[T]he Reorganized Debtors shall retain and shall have the exclusive
right to enforce any claims, rights and causes of action that the
1
The debtors are: Lothian Oil, Inc.; Lothian Oil (USA) Inc.; Lothian Oil Texas I, Inc.;
Lothian Oil Texas II, Inc.; Lothian Oil Investments I, Inc.; Lothian Oil Investments II, Inc.;
and LEaD I JVGP, Inc.
2
Belridge Group consists of: Peninsula Fund, L.P.; Peninsula Catalyst Fund, L.P.;
Peninsula Catalyst Fund (QP), L.P.; JVL Global Energy, L.P.; JVL Global Energy, (QP), L.P.;
Belridge Energy Advisors, L.P.; Navitas Fund, L.P.; Paul B. Lloyd, Jr.; Michael Raleigh; and
Nawab.
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Debtors or the Estates may hold against any entity . . .; provided,
however, that the Plan does not preclude the rights, if any, of
Creditors or Interest Holders to seek authority from the Bankruptcy
Court to bring claims of the Estates if not pursued by the Creditors’
Committee, the Debtors or the Plan Administrator by forty-five (45)
days prior to the expiration of the statute of limitations for such
cause of action.
11.3 Injunction:
[A]ll Persons who . . . may be holders of Claims against or Equity
Interests in the Debtors . . . shall be enjoined from taking any of the
following actions against or affecting the Debtors, their Estates, and
the Estate Property regarding such Claims or Equity Interests . . .
to the fullest extent provided under Bankruptcy Code section 524:
(i) commencing, conducting, or continuing in any manner, directly
or indirectly, any suit, action, or other proceeding of any kind
against the Debtors, their Estates, or the Estate Property . . .; (v)
proceeding in any manner and in any place whatsoever that does
not conform to or comply with the provisions of the Plan.
12.1 Exclusive Bankruptcy Court Jurisdiction:
[T]he Bankruptcy Court shall retain and have such jurisdiction over
the Bankruptcy Cases as is legally permissible, including . . . [t]o
determine all controversies, suits and disputes that may arise in
connection with the interpretation, enforcement or consummation
of this Plan or any entity’s obligations in connection with the
Plan . . . .
On October 30, 2008, Israel Grossman and other Appellants/Cross-
Appellees entered into a settlement agreement (“2008 Settlement”) with Lothian
releasing it of all claims in exchange for $1,025,000, but also providing that the
“[c]laims . . . shall be disallowed only as to [Lothian]; to the extent not satisfied
by this Agreement, the [c]laims . . . may still be asserted against any third
party.” The parties dispute the scope of this allowance. The bankruptcy court
approved the 2008 Settlement on December 8.
On September 16, 2009, Grossman and the Anti-Lothian Bankruptcy
Fraud Committee (“Anti-Lothian Committee”) moved to “clarify or modify” the
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Plan by setting aside the 2007 Compromise Orders and allegedly fraudulent
property transfers (“Anti-Lothian Document”).3 The Anti-Lothian Document
alleged that on April 20, 2007, Belridge Group took control of Lothian’s board of
directors and forced Lothian into bankruptcy. As part of the bankruptcy
proceeding, Belridge Group purportedly manipulated Lothian into surrendering
to Nawab—an entity created by Belridge Group to fraudulently receive the
properties—the Casselman, Bohannon, Foster, Cowden, and Nobles properties
without commensurate compensation.4
After hearing arguments on motions related to the Anti-Lothian
Document, the bankruptcy court found in Lothian’s favor. The bankruptcy court
held that Grossman and the Anti-Lothian Committee lacked standing and that
the Anti-Lothian Document was untimely because it fell outside the 180-day
limitation period for revoking fraudulent plan confirmation orders. The
bankruptcy court also dismissed the challenge as barred by res judicata,
collateral estoppel, and judicial estoppel. The district court affirmed. On appeal,
this court also affirmed, finding that Grossman and the Anti-Lothian Committee
lacked standing. In re Lothian Oil, Inc., No. 11-51082, 2013 WL 264337, at *1
(5th Cir. Jan. 23, 2013). We reasoned that “only the plan’s proponents or the
debtor may modify a confirmed plan” and that “[p]ermission was not sought from
the bankruptcy court to bring a derivative action on the debtor’s behalf.” Id. at
*3. We further agreed that the Anti-Lothian Document was untimely filed more
than a year after the Plan’s confirmation. Id. Notably, we rejected the claim
3
Grossman and the Anti-Lothian Committee originally sought to set aside the Plan
because of fraud. That challenge was dismissed without prejudice on September 17, 2009.
4
Grossman and the Anti-Lothian Committee’s challenge mirrored that previously
brought by the “Ad Hoc Committee of Series A Preferred Convertible Shareholders,” which
argued that conflicts of interest required invalidation of the 2007 Compromise Orders.
Settlements approved by the bankruptcy court on December 12, 2008, largely resolved the Ad
Hoc Committee’s challenge.
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that Grossman and the Anti-Lothian Committee were trying to preserve claims
against non-debtors, finding that such claims already were accounted for in the
2007 Compromise Orders. Id. at *3 n.5.
B. New York State-court Actions
1. LEaD II action
On December 24, 2009, attorney Jessica Sokol, on behalf of Grossman and
Lothian Cassidy, L.L.C., initiated a state-court action in New York County, New
York, styled Lothian Cassidy LLC and Israel Grossman v. Lothian Exploration
and Development II, L.P., Index No. 09/600586 (“LEaD II action”). The
complaint asserted, inter alia, that defendant (and non-debtor) Lothian
Exploration and Development II, L.P. (“LEaD II”) defaulted on payment of a
$500,000 promissory note and failed to pay Grossman $1.5 million in consulting
fees. It further sought constructive trusts over the Casselman, Bohannon,
Foster, Cowden, and Nobles properties that allegedly were fraudulently
transferred to Nawab. LEaD II, having ceased operation, did not answer, and
a default judgment was entered against it on May 10, 2010. The state court
referred the matter to a special referee on the issue of damages. The special
referee determined that Lothian Cassidy could recover on the promissory note,
but dismissed without prejudice the remaining claims for failure to join other
necessary parties, including Lothian.5
5
In January 2012, Grossman and Lothian Cassidy filed an amended verified complaint
reasserting the dismissed claims and adding as defendants Lothian Energy PLC and Belridge
Group. Belridge Group removed the matter to the United States District Court for the
Southern District of New York, and then moved to transfer the action to the Western District
of Texas. Grossman and Lothian Cassidy resisted transfer and moved to remand the action
to state court. On January 28, 2013, the district court denied Grossman’s motion, and granted
the motion to transfer. At oral argument, the parties represented that the district court’s
remand and transfer orders were on appeal before the Second Circuit. The Second Circuit’s
docket sheet for that appeal now reflects that the Second Circuit has dismissed Grossman and
Lothian Cassidy’s appeal. Presumably, the LEaD II action will now be transferred to the
Western District of Texas.
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2. Kings County action
On January 4, 2010, Sokol initiated a second state-court action, this time
on behalf of the majority of Appellants/Cross-Appellees, in Kings County, New
York, styled Lothian Cassidy LLC v. Ransom, Index No. 30398/09 (“Kings
County action”). The Kings County complaint asserted fifteen state-law causes
of action against various defendants, including former board members, officers,
and representatives of Lothian. Like the LEaD II action, the Kings County
action sought a constructive trust over the Casselman, Bohannon, Foster,
Cowden, and Nobles properties.6
C. Enjoining the State-court Actions
On January 22, 2010, Lothian filed a motion to enforce the Plan Injunction
against Grossman, the Anti-Lothian Committee, and the other plaintiffs in the
LEaD II and Kings County actions (collectively, “Anti-Lothian”). The
bankruptcy court held hearings on January 25 and February 11, during which
it first temporarily enjoined Anti-Lothian from further litigating the state-court
actions, and then found that the state-court actions violated the Plan Injunction.
On February 19, Grossman filed a “Motion to Compel Compliance with
December 8, 2008 Post-Liquidation Confirmation Settlement” (“Settlement
Enforcement Motion”). In it, Grossman argued that the 2008 Settlement
conferred an unconditional right to pursue claims against any third party. The
bankruptcy court held a hearing on April 8 and denied the Settlement
Enforcement Motion. Anti-Lothian responded by filing a motion for
reconsideration under Rule 9024 of the Federal Rules of Bankruptcy Procedure
6
The Kings County defendants subsequently removed the action to the United States
District Court for the Eastern District of New York. The Kings County action then was
transferred to the Western District of Texas, where it was referred to the bankruptcy court
and became an adversary proceeding. The bankruptcy court entered several orders dismissing
the Kings County claims, which the district court affirmed. An appeal from those dismissals
is separately pending before this court, In re Lothian Oil, Inc. (Shoshana Trust, et al., v.
Ransom, et al.), No. 12-50462.
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(“Rule 9024 motion”). The bankruptcy court denied reconsideration and Anti-
Lothian appealed the motion’s denial to the district court.
On April 15, the bankruptcy court issued a written order finding that the
state-court actions violated the Plan Injunction, and enjoining Anti-Lothian from
further litigating them. The injunction order warned that “any violation of this
Order will result in a finding of contempt.” On April 26, Anti-Lothian filed an
appeal from the bankruptcy court’s decision to enjoin the state-court actions and
deny the Settlement Enforcement Motion.
D. Lothian’s Motion for Contempt
Despite the bankruptcy court’s injunctive rulings in January, February,
and April 2010, Anti-Lothian continued to file numerous pleadings in the state-
court actions. In response, Lothian filed a motion seeking contempt judgments
against Anti-Lothian for violations of the bankruptcy court’s orders. The
bankruptcy court ordered the individuals and entities making up Anti-Lothian
to appear in person to show cause why they should not be held in contempt.
With the exception of Grossman—who appeared telephonically—none of them
appeared at the show cause hearing.
At the end of that hearing, the bankruptcy court found Anti-Lothian in
contempt of court and imposed the following sanctions: (1) a $500,000 judgment
against Sokol and Grossman, jointly and severally, in Lothian’s favor; (2) a
$100,000 judgment against Sokol and Grossman, jointly and severally, in
Belridge Group’s favor; (3) a bar against recovery by Anti-Lothian of any sum
from Lothian’s estate until all distributions from the bankruptcy estate made
after the date of the contempt judgment to all other claimants totaled
$1,000,000; and (4) a $10,000 sanction against Anti-Lothian payable to the
bankruptcy court for each additional action or pleading in the state-court
actions.
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The bankruptcy court issued a final contempt judgment on July 15, 2010.
Anti-Lothian appealed the contempt judgment.
E. District Court Decision
On March 24, 2011, the district court dismissed as untimely Anti-Lothian’s
appeal from the bankruptcy court’s order denying the Settlement Enforcement
Motion.7 It then consolidated Anti-Lothian’s appeal from the injunction order
and the contempt judgment.
On September 30, the district court issued a memorandum opinion and
order addressing the consolidated appeal and Anti-Lothian’s Rule 9024 motion.
Addressing the injunction order, the district court affirmed the injunction of the
Kings County action because the complaint “appear[ed] to consist entirely of
allegations that are derivative of an alleged injury to [Lothian].” By contrast,
the district court reversed the injunction of the LEaD II action because LEaD II
was a third-party non-debtor, and Lothian did not claim an interest in any of the
properties at issue. It then reversed the contempt judgment because the
bankruptcy court’s decision to hold Anti-Lothian “in civil contempt as well as its
calculation of the sanction amount was based in part on the erroneous finding
that the LEAD II Lawsuit violated the Plan Injunction.” The district court
affirmed the denial of Anti-Lothian’s Rule 9024 motion.
Anti-Lothian, Belridge Group, and Lothian appeal the district court’s
judgment.8
II. STANDING
At the outset, Lothian challenges whether several of the Anti-Lothian
claimants have standing to appeal the district court’s judgment—specifically,
7
In the same order the district court also dismissed as untimely Anti-Lothian’s appeal
from the bankruptcy court’s January 2010 order preliminarily enjoining litigation of the state-
court actions.
8
Belridge Group largely adopts Lothian’s arguments on appeal.
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Ezrasons, Inc., Hank Cohn, David Suss, Raphael Butler, Tarshis Foundation,
Ester Rosenberg Irrevocable Trust, Irving and Judith Braun, and Shira Trust.
With the exception of Ezrasons, Inc.—which was enjoined by the bankruptcy
court—none of the named individuals and entities is mentioned in the
bankruptcy court’s injunction order or contempt judgment. Anti-Lothian only
responds with vague and conclusory allegations of injury. We find these
insufficient to show that the listed Appellants/Cross-Appellees, with the
exception of Ezrasons, Inc., have standing. See In re Coho Energy Inc., 395 F.3d
198, 203 (5th Cir. 2004) (“[A]ppellant must show that he was ‘directly and
adversely affected pecuniarily by the order of the bankruptcy court’ in order to
have standing to appeal.” (citation omitted)).
Lothian also challenges Jan Arnett’s participation in this appeal. It
appears that the district court granted Arnett’s motion to dismiss his claims
with prejudice in August 2011. Nevertheless, the bankruptcy court previously
included Arnett in its injunction order and contempt judgment, and we hold that
Arnett has standing on this basis. See Samnorwood Indep. Sch. Dist. v. Tex.
Educ. Agency, 533 F.3d 258, 265–67 (5th Cir. 2008) (school districts collaterally
constrained by injunction had standing to challenge order); United States v. Holy
Land Found. for Relief & Dev., 445 F.3d 771, 780–81 (5th Cir. 2006).
III. PLAN INJUNCTION
The bankruptcy court interpreted the Plan Injunction to preclude the
LEaD II and Kings County actions and enjoined Anti-Lothian from further
litigating them without first seeking and obtaining its leave. We conclude that
the bankruptcy court properly enjoined the state-court actions because the
LEaD II and Kings County claims implicate the Plan confirmed in the
bankruptcy proceeding. Further, they are derivative of an injury to Lothian and
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thus are property of the bankruptcy estate that Lothian retained post-
confirmation.9
A. Standard of Review
When reviewing a bankruptcy appeal from the district court, we apply “the
same standard to the bankruptcy court’s findings of fact and conclusions of law
that the district court applied.” In re Morrison, 555 F.3d 473, 480 (5th Cir.
2009). “That standard reviews findings of fact for clear error and conclusions of
law de novo.” In re Lothian Oil, Inc., 650 F.3d 539, 542 (5th Cir. 2011).
“Whether a specific cause of action belongs to a bankruptcy estate is . . . a matter
of law that we decide by reference to the facial allegations in the complaint.” In
re Seven Seas Petrol., Inc., 522 F.3d 575, 583 (5th Cir. 2008).
B. Derivative Claims
“The filing of a chapter 11 petition creates an estate comprised of all the
debtor’s property, including ‘all legal or equitable interests of the debtor in
property as of the commencement of the case.’” Torch Liquidating Trust ex rel.
9
Like the district court, we are unmoved by Anti-Lothian’s contention that the
injunction of the state-court actions “improperly insulate[s] nondebtors” by “effectively
reliev[ing] the nondebtor[s] from [their] own liability to the creditor.” In re Zale Corp., 62 F.3d
746, 760 (5th Cir. 1995) (internal quotation marks and citation omitted). It is beyond dispute
that a bankruptcy court has “jurisdiction to interpret and enforce its own prior orders,” and
here the bankruptcy court determined that the state-court actions violated the terms of the
Plan Injunction it approved. Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151 (2009) (citation
omitted). As the bankruptcy court correctly observed “[Anti-Lothian’s] contention that
third-party non-debtor claims were not released in the Confirmed Plan is completely irrelevant
to the analysis.”
We are similarly unpersuaded by Anti-Lothian’s charge that the Plan’s language was
insufficient to retain estate claims after the Plan’s confirmation. Anti-Lothian contends that
“[i]f the Debtor did not specifically disclose prospective defendants it retained the right to sue
post-confirmation, the Reorganized Debtor has no standing to pursue those post-confirmation
claims.” While it is true that “[i]f 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,” In re United
Operating, LLC, 540 F.3d 351, 355 (5th Cir. 2008), it is not necessary that a plan individually
identify the parties to be sued, see In re MPF Holdings US LLC, 701 F.3d 449, 455–57 (5th Cir.
2012). In any event, Anti-Lothian did not raise this argument before the district court and we
have held that “[i]ssues not raised by a party seeking review in the district court are deemed
waived by this court.” In re MBS Mgmt. Servs., Inc., 690 F.3d 352, 355 n.1 (5th Cir. 2012).
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Bridge Assocs. L.L.C. v. Stockstill, 561 F.3d 377, 386 (5th Cir. 2009) (quoting 11
U.S.C. § 541(a)(1)). The phrase “all legal and equitable interests,” includes all
“rights of action as bestowed by either federal or state law.” In re S.I.
Acquisition, Inc., 817 F.2d 1142, 1149 (5th Cir. 1987); see In re Besing, 981 F.2d
1488, 1493 (5th Cir. 1993).
“Whether a particular state cause of action belongs to the estate depends
on whether under applicable state law the debtor could have raised the claim as
of the commencement of the case.” In re Educators Grp. Health Trust, 25 F.3d
1281, 1284 (5th Cir. 1994). This, in turn, requires consideration of “the nature
of the injury for which relief is sought” and “the relationship between the debtor
and the injury.” Seven Seas, 522 F.3d at 584. If a cause of action does not
explicitly or implicitly allege harm to the debtor, then the cause of action could
not have been asserted by the debtor as of the commencement of the case, and
will not be part of the bankruptcy estate. Id. However, “[i]f a cause of action
alleges only indirect harm to a creditor (i.e., an injury which derives from harm
to the debtor), and the debtor could have raised a claim for its direct injury
under the applicable law, then the cause of action belongs to the estate.”
Educators Grp. Health Trust, 25 F.3d. at 1284.
In Seven Seas we explored whether claims by a group of bondholders
constituted estate property. The debtor in that case (Seven Seas) had retained
the services of a consulting firm to provide reserve estimates for oil and gas
properties, which were incorporated into a prospectus for a $110 million debt
offering. Seven Seas, 522 F.3d at 578. The bondholders subsequently relied on
these estimates to purchase in private transactions and on the secondary market
$30 million in unsecured notes. Id. Seven Seas issued an additional $45 million
in senior, secured notes, half of which were purchased by an independent oil and
gas producer (Chesapeake). Id. at 578–79. After Seven Seas entered
bankruptcy, the bondholders brought suit against the consulting firm for
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negligent misrepresentation, fraud, violation of state securities law, and aiding
and abetting fraud. Id. at 580. The bondholders also brought suit against
Chesapeake, alleging that it knew the reserve estimates were inaccurate and
entered into a conspiracy to defraud the investors of the unsecured notes. Id. at
581. Bondholders argued that their claims were not property of the bankruptcy
estate because:
Seven Seas could not have brought claims based on the damages
that they suffered as a result of their reliance on the false reserve
estimates when they invested in the unsecured notes, as Seven Seas
simply was not harmed by misrepresentations made to the
bondholders to induce them to buy (or refrain from selling) the notes
on the secondary market.
Id. at 585.
In evaluating the bondholders’ arguments, we considered “whether under
state law Seven Seas could have raised the claims as of the commencement of
the bankruptcy, and examine[d] the nature of the injury for which relief [was]
sought.” Id. We agreed that the bondholders “allege[d] more than an injury that
[was] merely derivative of an injury to Seven Seas.” Id. We based our
conclusion on bondholders’ allegations that Chesapeake knew the reserve
estimates were false and used those estimates to induce bondholders to purchase
or refrain from selling the unsecured notes. Id. at 586. This, we found,
constituted a direct injury to bondholders that was independent of any injury
Seven Seas suffered. Id. We similarly found that the bondholders’ aiding-and-
abetting-fraud claim alleged a direct injury because it claimed that Chesapeake
assisted Seven Seas in publishing the false reserve estimates. Id.Further, we expressed “doubt that, under applicable state law, Seven Seas
could have raised either claim as of the commencement of the bankruptcy case.”
Id. The underlying wrong alleged in Sevens Seas was the making of
misrepresentations on which the bondholders relied to purchase the unsecured
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notes, and Seven Seas could not have been in a position to claim damages as a
result of purchases made in private transactions or on the secondary market.
Id. We concluded that “Seven Seas could not have asserted the claims as of the
commencement of the bankruptcy case,” and thus “these claims [were] not
property of the Seven Seas bankruptcy estate.” Id. at 587. We cautioned
however, that our holding did not mean “that Seven Seas might not also have
suffered its own direct injury because of some wrongdoing on the part of
Chesapeake, or could not have brought any claims against Chesapeake as of the
commencement of the case.” Id. Instead, our holding was limited to finding that
“the bondholders’ claims and the estate’s claims are not mutually exclusive:
there is nothing illogical or contradictory about saying that Chesapeake might
have inflicted direct injuries on both the bondholders and Seven Seas during the
course of dealings that form the backdrop of both sets of claims.” Id.As discussed below, we find the reasoning in Seven Seas instructive in
explaining why Anti-Lothian’s state-court claims are derivative and were
properly enjoined by the bankruptcy court.
C. State-court Actions
Anti-Lothian seeks reversal of the order enjoining their litigation of the
Kings County action. Belridge Group and Lothian ask us to reverse the district
court’s lifting of the LEaD II injunction. Because discussion of the Kings County
action illuminates our analysis of the LEaD II action, we begin our analysis with
Anti-Lothian’s appeal.
a) Kings County action
The bankruptcy court enjoined Anti-Lothian’s prosecution of the Kings
County action and prohibited it from “seeking relief against any of the
individuals that are involved in [the bankruptcy proceeding] . . . . [for] claims
against Lothian or that involve property that used to be owned by Lothian or
that is currently owned by Lothian.” It further stressed that Anti-Lothian could
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not pursue claims “against property of Lothian that was property prepetition or
that was disposed of by sales or compromises or otherwise in the [bankruptcy
proceeding]. . . . [because] [t]hose are causes of action which are owned by
Lothian Oil, Inc., the Debtor in this case and they’re assets of the reorganized
Debtor under the plan.” The district court agreed that the Kings County
complaint—“a bloated . . . and nearly indecipherable” document—consisted of
“sweeping accusations of conspiracy, manipulation and blackmail” against
“former officers, directors and agents of [Lothian], as well as [its] lead counsel
and the plan administrator.” It held that the Kings County complaint
“consist[ed] entirely of allegations that are derivative of an alleged injury to the
Debtor,” which “fall squarely within the scope of the plan injunction.”
Anti-Lothian disputes this characterization and argues that the injury
inflicted by the Kings County defendants is independent of any injury Lothian
suffered.10 In support, Anti-Lothian primarily relies on the principle discussed
in Seven Seas, that a bankruptcy estate and a creditor can own separate causes
of action against a third party arising out of the same factual circumstances. See
522 F.3d at 585.
While we agree that Seven Seas is instructive, our holding in that case was
a “narrow one.” Id. at 587. Unlike the result reached there, here we agree with
the bankruptcy and district courts that the Kings County claims are derivative
of claims retained by Lothian or were disposed of in the bankruptcy proceeding.
10
While Anti-Lothian raises numerous other arguments—purporting to identify as
many as fourteen issues on appeal—these arguments either were not raised before the district
court or are asserted in a conclusory fashion. MBS Mgmt. Servs., Inc., 690 F.3d at 355 n.1;
Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 356 n.7 (5th Cir. 2003) (insufficiently
briefed issues are waived). As we previously observed in addressing one of Anti-Lothian’s
earlier appeals, “[i]t is not the function of an appellate court . . . to divine arguments on behalf
of litigants from a substantial narrative; undeveloped arguments are rightly ignored.” Lothian
Oil, Inc., 2013 WL 264337, at *4.
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No. 11-51073
The Kings County complaint alleges fifteen causes of action against former
officers, directors, and other individuals and entities associated with Lothian’s
bankruptcy proceeding. Included among the claims are causes of action for
breach of fiduciary duty, fraud, conversion, negligence, gross negligence, and
conspiracy. Distilled to its essentials, however, Anti-Lothian asserts that
Belridge Group created Nawab and forced Lothian into bankruptcy. Belridge
Group then manipulated Lothian into transferring its interests in the
Casselman, Bohannon, Foster, Cowden, and Nobles properties to Nawab, despite
Anti-Lothian having rights in those properties. Anti-Lothian seeks to hold
Lothian’s officers and directors liable for the parts they played in facilitating or
allowing these transfers.
Considering first the nature of the Kings County allegations, it is clear
that the problems with the Kings County claims are manifold. Foremost among
them is that Anti-Lothian’s injury is contingent upon the injury Lothian suffered
when it was forced to enter bankruptcy and fraudulently transfer properties it
owned. See Educators Grp. Health Trust, 25 F.3d at 1285–86 (court must
consider the relationship between a debtor and the nature of the injury suffered).
Unlike in Seven Seas—where the debtor was not harmed by the alleged
misrepresentations—here Anti-Lothian’s allegations focus on actions taken by
Lothian, before and during the bankruptcy proceeding, which the bankruptcy
court later approved. See 522 F.3d at 585–86. In particular, the bankruptcy
court approved settlements and auction sales that transferred the Casselman,
Bohannon, Foster, Cowden, and Nobles properties to Nawab.
Importantly, Anti-Lothian did not timely challenge the Plan’s
confirmation. The Kings County complaint thus is an attempt to make up for
lost time: having failed to contest the Plan at its inception, Anti-Lothian now
seeks to substantively undo its terms. Those efforts trace back to the Anti-
Lothian Document, which similarly sought to set aside the 2007 Compromise
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No. 11-51073
Orders and the purportedly fraudulent transfers. We dismissed that challenge
on numerous grounds. Lothian Oil, Inc., 2013 WL 264337, at *3. In so doing,
we expressly rejected Anti-Lothian’s assertion that it was seeking to preserve
claims against non-debtors because the 2007 Compromise Orders “covered those
non-debtors as well.” Id. at *3 n.5. We concluded with the admonition that
“[d]eadlines may lead to unwelcome results, but they prompt parties to act and
they produce finality.” Id. at *4 (quoting Taylor v. Freeland & Kronz, 503 U.S.
638, 644 (1992)). Anti-Lothian’s attempt to use the Kings County action to avoid
this principle fails.
Like the Anti-Lothian Document, the Kings County action seeks to undo
the 2007 Compromise Orders and property transfers. But instead of petitioning
the bankruptcy court directly, Anti-Lothian seeks constructive trusts over the
properties disposed of in the bankruptcy proceeding by bringing suit against
individuals and entities involved in or related to that proceeding. Regardless of
the merits of the Kings County claims, they cannot be divorced from the
bankruptcy proceeding itself. Success in the Kings County action would grant
Anti-Lothian the same relief the bankruptcy court previously denied it:
unraveling of the 2007 Compromise Orders and reversal of the property
transfers.
Further support for our conclusion comes from considering the causes of
action asserted in the Kings County action. The Kings County complaint’s
central assertion is that Belridge Group manipulated Lothian into bankruptcy
by taking over its board of directors and then orchestrated a fraudulent asset
transfer. “We think that when such a debtor is forced into bankruptcy, it makes
the most sense to consider the debtor as continuing to have a ‘legal or equitable
interest[]’ in the property fraudulently transferred within the meaning of section
541(a)(1) of the Bankruptcy Code.” In re MortgageAmerica Corp., 714 F.2d 1266,
1275 (5th Cir. 1983) (alterations in original) (citation omitted); see also In re
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Moore, 608 F.3d 253, 259 (5th Cir. 2010) (fraudulent-transfer claims are estate
property under Texas law). Thus, in Seven Seas, we noted that while “some
claims . . . are usually brought by creditors outside of bankruptcy (and thus in
a sense may be said to ‘belong to’ the creditors and not the debtor),” we found
that this is not the case where creditors “ultimately seek to recover assets of the
estate that are not under the debtor’s control—by reason of a fraudulent
transfer, for instance, or because of the existence of separate corporate entities
that are a sham.” 522 F.3d at 589 (footnote omitted); see Educators Grp. Health
Trust, 25 F.3d at 1285 (claims that defendants conspired to make debtor
insolvent and commit fraudulent transfers were part of bankruptcy estate); cf.
Shandong Yinguang Chem. Indus. Joint Stock Co. v. Potter, 607 F.3d 1029, 1036
n.4 (5th Cir. 2010) (“Neither Seven Seas nor Educators [Group Health Trust] . . .
disturbed the additional requirement . . . that an individual claim seeking
recovery or control of the debtor’s property is subject to the [Bankruptcy] Code’s
automatic stay.”).
The remaining Kings County claims also are derivative of claims retained
by Lothian. For example, the Kings County complaint asserts that Lothian’s
officers breached their fiduciary duty by favoring Nawab and Belridge Group’s
interests over Lothian’s. Such claims belonged to Lothian and became property
of the bankruptcy estate at the commencement of the Chapter 11 bankruptcy.
See Educators Grp. Health Trust, 25 F.3d at 1286 (finding that breach of
fiduciary duty claims were part of bankruptcy estate). Other causes of action
allege professional misconduct by Lothian’s officers and directors before and
during the bankruptcy proceeding. See In re Southmark Corp., 163 F.3d 925,
931 (5th Cir. 1999) (professional malpractice claims were “inseparable from the
bankruptcy context” because “[a] sine qua non in restructuring the debtor-
creditor relationship is the court’s ability to police the fiduciaries . . . who are
responsible for managing the debtor’s estate”). Finally, many of the Kings
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No. 11-51073
County claims simply assert that the defendants were negligent or grossly
negligent in their capacities as shareholders, officers, directors, or attorneys of
Lothian. See Educators Grp. Health Trust, 25 F.3d at 1285 (claims that
defendants negligently managed and conspired to negligently manage debtor
belonged to bankruptcy estate). All these claims are derivative of an injury
suffered by Lothian and thus were part of the bankruptcy estate that passed to
Lothian under the terms of the confirmed Plan. See Floyd v. CIBC World
Markets, Inc., 426 B.R. 622, 636 (S.D. Tex. 2009) (claims were part of bankruptcy
estate where plaintiff alleged pre-bankruptcy petition injury to debtor caused by
breach of fiduciary duties, negligence, and fraud)
It thus is clear to us that the Kings County claims are derivative of an
injury Lothian suffered. These claims became part of Lothian’s bankruptcy
estate and reverted to Lothian upon confirmation of the Plan. The bankruptcy
court did not err in—and the district court correctly affirmed—enforcing the
Plan Injunction to enjoin the Kings County action.
b) LEaD II action
As with the Kings County action, the LEaD II action raises claims largely
derivative of an alleged injury to Lothian. The bankruptcy court enjoined the
LEaD II action and made clear that Anti-Lothian could not bring suit against
LEaD II for any cause of action that “involve[d] derivative claims or actual
claims owned by Lothian.” The district court reversed this part of the
bankruptcy court’s injunction order because it was “based on the clearly
erroneous finding that the suit affected Estate Property.” According to the
district court, Lothian did “not contend that the Debtors or Estates held any
right to the properties against which the LEaD II plaintiffs seek a constructive
trust,” and “[n]either [Lothian’s] brief nor the Record contains any support for
the conclusion that the Confirmed Plan enjoined litigation against third-party
non-debtors that do not involve Estate Property.”
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Lothian argues that the district court should have affirmed the LEaD II
injunction. It submits that the district court’s interpretation of the Plan
Injunction was overly narrow. While Lothian agrees that it no longer owns the
physical properties, it contends that causes of action related to those properties
became estate property that reverted to Lothian’s control after the Plan’s
confirmation. Moreover, according to Lothian, the district court failed to
appreciate that the LEaD II action—if successful—would unravel many of the
bankruptcy court’s orders in the bankruptcy proceeding, constituting a de facto
collateral attack on the Plan’s confirmation.
We agree with the bankruptcy court’s decision to enjoin this proceeding.
As Lothian points out, the similarities between the two complaints are striking.11
Both the Kings County and LEaD II complaints assert claims for breach of
contract, tortious interference with a contract, gross negligence, conversion,
fraud, unjust enrichment, equitable and promissory estoppel, quantum meruit,
specific performance, actual trust, and constructive trust. Like the Kings
County complaint, the LEaD II complaint also alleges a scheme to force Lothian
into bankruptcy and then transfer for insufficient remuneration properties to
Nawab, an entity under Belridge Group’s control. Many of the LEaD II
complaint’s assertions are premised on this purported scheme.
Thus, LEaD II allegedly is liable for failing to inform Anti-Lothian that
Belridge Group was conspiring to consummate the fraudulent takeover of
various properties. According to the LEaD II complaint, “[LEaD II] fraudulently
transferred the . . . Cowden, Caselman[,] Bohannon, Foster, and Nobles
prospects that it owned or that it should have assisted its partner non-party
Lothian in redeeming from . . . NAWAB . . ., so that those assets could be
available to satisfy its debt to [Grossman and Lothian Cassidy].” Importantly,
11
We note that parts of the LEaD II complaint actually are identical to the Kings
County complaint.
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No. 11-51073
like the Kings County action, the LEaD II complaint alleges that the bankruptcy
proceeding was deficient. LEaD II purportedly allowed “assets to be
misappropriated by the bankrupt non-party Lothian [and] then be fraudulently
conveyed to [Lothian’s] minority Texas shareholders [Belridge Group].” The
complaint goes on to assert that LEaD II “inten[ded] to conspire to transfer its
asset[s] to the bankrupt non-party Lothian and fraudulently convey assets to its
minority Texas shareholders [Belridge Group] via unfair settlements and
otherwise, without notifying [Grossman and Lothian Cassidy].”
In short, the LEaD II complaint asserts that LEaD II facilitated or failed
to stop the fraudulent transfer of properties in which Anti-Lothian claims an
interest. These allegations have been addressed by the bankruptcy court and
implicate the bankruptcy court’s orders, most notably the 2007 Compromise
Orders. Like the Kings County claims, the LEaD II claims are derivative of
harm Lothian suffered—the fraudulent transfer of the Casselman, Bohannon,
Foster, Cowden, and Nobles properties.
Comparing the allegations in the Kings County and LEaD II complaints
confirms our decision. Such a comparison reveals that Anti-Lothian did not
substantively change its allegations between the two pleadings. Instead, the
Kings County complaint simply substituted numerous other defendants,
including directors and officers of Lothian, for LEaD II.12 The complaint’s
description of LEaD II as an entity partnered with Lothian conveniently makes
LEaD II subject to all the claims previously raised in the Anti-Lothian
Document, which the bankruptcy court dismissed. In so doing, Anti-Lothian
assigns ownership of the various properties at issue to LEaD II and seeks to hold
12
Tellingly, after the state-court-appointed special referee dismissed the majority of the
LEaD II claims for failure to join other necessary parties—including Lothian—Grossman and
Lothian Cassidy proceeded to file an amended complaint that added many of the parties
involved in the Kings County action (but not Lothian), and thus for all intents and purposes
reconstituted the Kings County action.
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No. 11-51073
LEaD II liable for failing to transfer the properties to Grossman and Lothian
Cassidy.
To be sure, the Kings County and LEaD II complaints are not identical.
Unlike the Kings County action, the LEaD II lawsuit was brought by only two
plaintiffs—Grossman and Lothian Cassidy. The LEaD II action also only was
brought against LEaD II. But even these differences disguise similarities
between the two complaints. Although only Grossman and Lothian Cassidy are
named as plaintiffs, the LEaD II complaint also lists Shoshana Trust, Anna
Meisher Pension Plan, and YG Trust as “members” of Lothian Cassidy, and
includes claims arising out of loans they made to LEaD II through Lothian
Cassidy. Each of these entities also is a plaintiff in the Kings County action.
LEaD II itself is described as a “sister corporation” of Lothian that allegedly at
one point owned in partnership with it the properties on which Anti-Lothian
seeks constructive trusts. Alternatively, the complaint seeks to hold LEaD II
liable because Grossman and Lothian Cassidy did business with LEaD II
through Lothian. Ultimately, however, the LEaD II and Kings County
complaints seek the same thing: transfer of title and constructive trusts over
properties disposed of in the bankruptcy proceeding.
We are given pause only because interspersed with Anti-Lothian’s other
assertions is one claim that appears separate from the bankruptcy proceeding.
The LEaD II complaint alleges that Lothian Cassidy loaned $500,000 to LEaD
II, and that LEaD II defaulted on the loan. On the face of the complaint, that
loan appears not to implicate the bankruptcy proceeding and is limited to LEaD
II. Notably, the state-court-assigned special referee, who considered the issue
of damages following LEaD II’s default, also found that the promissory note
claim could proceed, and awarded $759,653.47 in damages.
Nevertheless, we do not view the existence of this one potential claim
among the LEaD II complaint’s many other allegations as sufficient grounds to
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No. 11-51073
reverse the bankruptcy court’s injunction. For one, the amount owed on the
promissory note is minuscule compared to the damages the complaint alleges.13
For another, the promissory note, although mentioned in the complaint’s facts,
is not expressly referred to anywhere else in that document. We also note that
Anti-Lothian declined the opportunity to proceed with this one claim, but
asserted it as part of a much larger set of claims that, as discussed, are
derivative of claims retained by Lothian. In particular, the injunction order
stated that Anti-Lothian could seek and obtain leave from the bankruptcy court
to institute any additional actions. Anti-Lothian points to no part of the record
showing that it sought to proceed in a limited fashion on the promissory note
claim. Finally, Anti-Lothian barely mentions the promissory note in its
appellate brief, much less argues that Anti-Lothian should be allowed to proceed
on it.14
Under these circumstances, we leave it to the bankruptcy court to
determine the extent to which Anti-Lothian can pursue a claim independent of
the bankruptcy proceeding on the basis of the promissory note. The bankruptcy
court’s injunction order provided as much, ordering that Anti-Lothian first seek
leave from the bankruptcy court before initiating any lawsuit against various
persons and entities related to Lothian’s bankruptcy proceeding. The inclusion
of claims that implicate the bankruptcy proceeding, and Lothian’s interest in the
Casselman, Bohannon, Foster, Cowden, and Nobles properties, are sufficient for
us to find that the bankruptcy court properly enjoined the LEaD II action.
13
By Anti-Lothian’s own reckoning, they are owed $43-69 million.
14
These circumstances distinguish this case from others in which we separated out
claims belonging to a bankruptcy estate from those that independently could proceed. Thus,
in Educators Group Health Trust, the trustee in a Chapter 7 bankruptcy proceeding filed a
motion to determine which party had the authority to pursue particular causes of action
asserted in a state court lawsuit. 25 F.3d at 1283. Here, by contrast, Anti-Lothian did not
seek to proceed on any individual claim but challenged the bankruptcy court’s authority to
enjoin the state-court actions.
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Resolution of the claims in the LEaD II complaint necessarily would affect
Lothian and entail re-litigation of a matter the bankruptcy court already
considered and rejected: the fraudulent property transfers to Nawab. Given the
nature of the LEaD II complaint, we see no error in the bankruptcy court’s
decision to enjoin Grossman and Lothian Cassidy’s litigation of that action.
IV. Settlement Enforcement Motion
According to Grossman’s Settlement Enforcement Motion, the 2008
Settlement estopped Lothian from resisting actions by Anti-Lothian against
third-party non-debtors. Lothian argues that Anti-Lothian did not timely appeal
denial of the Settlement Enforcement Motion. Anti-Lothian responds that its
Rule 9024 motion for reconsideration extended the appeal deadline and that the
district court’s March 24, 2011 dismissal thus was improper.
Because Anti-Lothian’s Rule 9024 motion raises the same argument as the
Settlement Enforcement Motion, we address that argument here. We agree with
the bankruptcy and district courts that the 2008 Settlement does not allow Anti-
Lothian to ignore the Plan provisions to pursue claims like those raised in the
LEaD II and Kings County actions. While the 2008 Settlement provides that
Anti-Lothian’s claims “may still be asserted against any third party,” Anti-
Lothian conflates claims it held against Lothian with claims Lothian itself held
against third parties, i.e., estate claims. Put another way, Anti-Lothian was
never entitled to bring the claims it now pursues in the LEaD II and Kings
County actions because those are derivative claims.
Additionally, the settlement agreement nowhere provides that Anti-
Lothian can bring actions on behalf of Lothian or its bankruptcy estate. It also
does not exempt Anti-Lothian from the Plan Injunction. As previously
mentioned, we also have rejected Anti-Lothian’s attempts to retain causes of
action against non-debtors. We noted that “[Anti-Lothian’s] claim that [it]
seek[s] to preserve claims against non-debtors . . . is meritless. The [2007]
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Compromise Orders, which were recapitulated in the plan, covered those
non-debtors as well; only an appeal of the confirmation order could have changed
this.” Lothian Oil, Inc., 2013 WL 264337, at *3 n.5.
The assertion that the 2008 Settlement constitutes an additional exception
to those the Plan recognized is without merit.
V. Contempt
After finding that Anti-Lothian repeatedly violated its injunction order,
the bankruptcy court issued a contempt judgment holding Anti-Lothian in civil
contempt and imposing sanctions. The district court reversed the contempt
judgment after determining that the LEaD II action should not have been
enjoined. It found that “[t]he Bankruptcy Court’s finding that the LEAD II
Lawsuit violated the Plan Injunction was erroneous and so any contempt
judgment against appellants for prosecuting the LEAD II Lawsuit must be
reversed.” It reversed the entire contempt judgment because the bankruptcy
court’s contempt finding and calculation of the sanctions’ amount was partially
based on Anti-Lothian’s continued prosecution of the LEAD II action. Because
we affirm the bankruptcy court’s injunction order, we similarly affirm its
contempt judgment.
A. Contempt Power
“It is settled law that the power to punish for contempt is an inherent
power of the federal courts and that it includes the power to punish violations
of their own orders.” In re Bradley, 588 F.3d 254, 265 (5th Cir. 2009) (internal
quotation marks and citation omitted). While bankruptcy courts as non-Article
III courts lack the power to impose criminal contempt sanctions for conduct
committed outside the presence of the court, they retain the power to impose
civil contempt under § 105 of the Bankruptcy Code. Id. at 266. “A bankruptcy
court’s assessment of monetary sanctions for contempt is reviewed for abuse of
discretion.” Id. at 261. A court “abuses its discretion if it awards sanctions
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based on an erroneous view of the law or on a clearly erroneous assessment of
the evidence.” Connor v. Travis Cnty., 209 F.3d 794, 799 (5th Cir. 2000)
(internal quotation marks and citation omitted).
B. Contempt Judgment
We begin by observing that Anti-Lothian’s conduct satisfied the elements
necessary for imposing a civil contempt sanction. To hold a party in civil
contempt, a court must find “(1) that a court order was in effect, . . . (2) that the
order required certain conduct by the respondent, and (3) that the respondent
failed to comply with the court’s order.” FDIC v. LeGrand, 43 F.3d 163, 170 (5th
Cir. 1995). The bankruptcy court expressly enjoined Anti-Lothian from further
litigating the LEaD II and Kings County actions. Anti-Lothian proceeded to file
numerous additional pleadings in both actions in contravention of the injunction
order. While it is true that “a bankruptcy court’s inherent power to punish
bad-faith conduct does not extend to actions in a separate state court
proceeding,” here the imposition of sanctions was appropriate because the state-
court actions were intertwined with the bankruptcy court’s orders and included
issues previously resolved by the bankruptcy court.15 In re Case, 937 F.2d 1014,
1023–24 (5th Cir. 1991) (reversing sanctions award where “[t]he conduct of the
parties in the state action [could not] be said to affect the exercise of the judicial
authority of the bankruptcy court or limit the bankruptcy court’s power to
control the behavior of parties and attorneys in the litigation before it”).
In seeking to avoid this result, Anti-Lothian only disputes the imposition
of sanctions, not the sanctions’ amount. It raises two arguments rejected by the
district court. First, Anti-Lothian argues that the contempt judgment was an
15
Even if we accepted Anti-Lothian’s contention that it was acting in good faith, this
would not excuse its conduct. See Chao v. Transocean Offshore, Inc., 276 F.3d 725, 728 (5th
Cir. 2002) (“Good faith is not a defense to civil contempt; the question is whether the alleged
contemnor complied with the court's order.”).
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improper criminal sanction. Second, Anti-Lothian contends that the contempt
judgment constitutes impermissible fee shifting. Neither argument has merit.16
In determining whether a contempt judgment imposed a criminal or civil
sanction, we consider the primary purpose for which the contempt order was
entered:
If the purpose of the sanction is to punish the contemnor and
vindicate the authority of the court, the order is viewed as criminal.
If the purpose of the sanction is to coerce the contemnor into
compliance with a court order, or to compensate another party for
the contemnor’s violation, the order is considered purely civil.
In re Bradley, 588 F.3d at 263 (internal quotation marks and citation omitted).
Here, the bankruptcy court’s contempt judgment included both remedial
and coercive components. The contempt judgment served a remedial purpose
because it sought to “partially reimburse” Lothian for costs incurred as a result
of the state-court actions through its imposition of a $500,000 sanction against
Anti-Lothian’s then-attorneys, and a $100,000 sanction in Belridge Group’s
favor. The contempt judgment also served a coercive purpose by imposing a
$10,000 sanction for every additional pleading in the state-court actions. This
theoretically should have persuaded Anti-Lothian to first obtain leave from the
16
Anti-Lothian’s other arguments are trivial. For example, it posits that it could not
be held in contempt while it was appealing the bankruptcy court’s show cause order, but this
is plainly wrong. See United States v. Cox, 342 F.2d 167, 172 (5th Cir. 1965) (show cause order
was interlocutory and not appealable); see also In re Avante Real Estate, Inc., 69 F.3d 536 (5th
Cir. 1995) (Table) (affirming district court’s conclusion “that the Show Cause Order was not
a final order and therefore not appealable, and that the bankruptcy court did not err in
sanctioning [party] for [its] conduct”). Anti-Lothian also incorrectly asserts that the
bankruptcy court’s order was unclear and ambiguous. Lastly, Anti-Lothian contends that
actually it is Lothian’s counsel who should be sanctioned. Anti-Lothian did not appeal the
district court’s failure to impose sanctions on Lothian, nor is it clear that it raised this
argument below. The argument thus is waived. See Weaver v. Tex. Capital Bank N.A., 660
F.3d 900, 905 (5th Cir. 2011) (“Although an appellee may argue any ground available to
support affirmance of a judgment, he may not argue for a ruling that would expand his legal
rights.”).
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bankruptcy court before filing additional pleadings in the state-court actions.
The sanctions’ failure to do so does not alter the contempt judgment’s civil
nature.
Turning to Anti-Lothian’s second argument, parties generally bear their
own litigation costs. See In re Jack/Wade Drilling, Inc., 258 F.3d 385, 390 n.4
(5th Cir. 2001). However, one exception to this rule is for willful disobedience
of a court order. Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991). Given Anti-
Lothian and its attorneys’ decision to ignore the injunction order, we have little
difficulty in concluding that this exception applies here.
We thus hold that the bankruptcy court did not abuse its discretion in
imposing sanctions on Anti-Lothian—and its former attorneys Grossman and
Sokol—for continuing to prosecute the LEaD II and Kings County actions in
violation of the court’s injunction order.
VI. CONCLUSION
For the aforementioned reasons, we AFFIRM in part and REVERSE in
part the district court’s judgment and AFFIRM in all respects the bankruptcy
court’s (1) injunction order enjoining litigation of the LEaD II and Kings County
actions; (2) denial of the Settlement Enforcement Motion and accompanying
motion for reconsideration; and (3) contempt judgment. We REMAND to the
district court to remand to the bankruptcy court for the limited purpose of
clarifying whether the LEaD II action’s promissory note claim can proceed.
We DISMISS for lack of standing the appeals by Hank Cohn, David Suss,
Raphael Butler, Tarshis Foundation, Ester Rosenberg Irrevocable Trust, Irving
and Judith Braun, and Shira Trust.
Costs shall be borne by Appellants Cross-Appellees other than those listed
in the preceding paragraph whose appeals have been dismissed.
28