United States: Fifth Circuit Expands Documents Applicable To Determining Claim Preservation

This article originally appeared in The Legal Intelligencer and is republished with permission from law.com

In a matter of apparent first impression, in Spicer v. Laguna Madre Oil & Gas II LLC (In re Texas Wyoming Drilling Inc.), the 5th U.S. Circuit Court of Appeals held in an opinion dated July 21 that it was permissible to consider both a plan of reorganization and its accompanying disclosure statement when determining whether a debtor had sufficiently preserved certain causes of action pursuant to § 1123 of the Bankruptcy Code.

In Spicer, a dispute arose concerning whether Texas Wyoming Drilling Inc. (the debtor) had standing to prosecute certain claims against Laguna Madre Oil & Gas II LLC. Following approval of the debtor's disclosure statement and a few months after confirmation of the debtor's plan, the debtor commenced suits against various former shareholders, including Laguna, seeking to avoid and recover as constructively fraudulent transfers certain dividend payments pursuant to §§ 544, 548, 550 of the Bankruptcy Code, and to various provisions of the Texas Business and Commerce Code (the avoidance actions). In response, Laguna filed a motion for summary judgment arguing that the debtor, through its plan, had failed to preserve the avoidance actions pursuant to § 1123(b)(3)(B) of the Bankruptcy Code, which provides that "a plan may ... provide for ... the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest."

A day before the hearing to consider Laguna's motion for summary judgment, the bankruptcy court, sua sponte, converted the debtor's case to one under Chapter 7 because the debtor had materially defaulted under its plan. As the trustee automatically succeeded the debtor as plaintiff, the bankruptcy court heard argument from Laguna and the trustee on Laguna's motion for summary judgment. The bankruptcy court denied Laguna's motion, finding that Laguna's defenses were meritless and, in any event, the court's conversion of the case allowed the trustee to pursue the claims even though the debtor may not have been able to do so. At Laguna's request, the bankruptcy court certified its order for direct appeal to the 5th Circuit.

In addressing this appeal, the court of appeals first articulated the standard under § 1123 of the Bankruptcy Code. In so doing, the court recognized that a debtor's ability to enforce a claim once held by the estate was limited to those claims and/or causes of action that were retained in the debtor's plan of reorganization (citing the 2008 5th Circuit opinion in Dynasty Oil & Gas LLC v. Citizens Bank (In re United Operating LLC)). In addition, the court stated that a plan must "expressly retain" a claim or cause of action and the reservation must be "specific and unequivocal." Having set forth the relevant standard for preserving a cause of action pursuant to § 1123 of the Bankruptcy Code, the court turned to Laguna's arguments.

Laguna's first argument turned on whether the bankruptcy court erred in considering not only the debtor's plan, but the accompanying disclosure statement as well, in determining whether the debtor had sufficiently retained the claims against Laguna as required by § 1123 of the Bankruptcy Code. Acknowledging that no other court of appeals had addressed the matter, the court pointed to § 1123(b)(3)(B) and the fact that this section contained no language addressing whether a debtor might preserve claims through language contained in a disclosure statement.

The court then noted that disclosure statements are routinely consulted in determining whether res judicata and/or judicial estoppel applies. Recognizing that at least one court had held that the language in a disclosure statement was insufficient for purposes of § 1123 of the Bankruptcy Code, the court observed that a disclosure statement serves as the primary notice mechanism in a bankruptcy case through which a debtor (or plan proponent) provides information of a nature that sufficiently allows creditors to make an informed decision whether to vote for or against a plan. The court then held that it was proper to consult a disclosure statement for purposes of § 1123, opining that such consultation was appropriate considering: (a) the role served by a disclosure statement; (b) the purpose behind the rule in United Operating; and (c) that courts in similar contexts often consult the debtor's disclosure statement.

Having held that a court could consider a disclosure statement for purposes of § 1123 of the Bankruptcy Code, the court turned to Laguna's second argument, which turned on the specific language contained in the debtor's disclosure statement and plan. Specifically, Laguna argued that the language in the plan and disclosure statement failed to retain the right to bring the avoidance actions because the language did not specifically identify potential defendants. Considering the plan, the court noted that, under a section titled "Retention of Causes of Action," the plan stated that "the reorganized debtor shall retain all rights, claims, defenses, and causes of action, including, but not limited to, the estate actions, and shall have sole authority to prosecute and/or settle such actions." In addition, the language in the disclosure statement provided that "the debtor reserves all rights to pursue, at its sole discretion, any estate actions not limited to but including any preference to the full extent allowed under the Bankruptcy Code and applicable state laws. The debtor may also pursue other actions including but not limited to actions under sections 542 and 549 of the Bankruptcy Code."

Moreover, both the plan and the disclosure statement defined "estate actions" to include Chapter 5 claims (claims, such as the one brought against Laguna, involving recovery of certain transfers made by a debtor before bankruptcy). In addition to the language contained in the plan, the debtor's disclosure statement included a chart summarizing certain claims and/or causes of action that the debtor might pursue on behalf of its estate. This chart identified, among the potential defendants, "various pre-petition shareholders of the debtor" who might be sued for "fraudulent transfer and recovery of dividends paid to shareholders."

Based upon the court's consideration of the language contained in both the debtor's plan and disclosure statement, the court rejected Laguna's argument, concluding that defendants need not be identified by name in order for the debtor to adequately preserve claims against them. Moreover, the court noted that in its prior decision in United Operating, it had opined that categorical reservations of causes of action were sufficient (i.e., in the case of preferences, a plan need not itemize individual transfers that may be avoidable and recoverable). In addition, the court stated that, even if categorical reservations were not appropriate, in this case, the plan and disclosure statement did identify the prospective defendants (including Laguna) as "various pre-petition shareholders of the debtor" who might be sued for "fraudulent transfer and recovery of dividends paid to shareholders." Accordingly, the court found that the debtor had "specifically and unequivocally" retained the claims in the plan and disclosure statement. Therefore, once the case converted to a Chapter 7 bankruptcy, the trustee had standing to pursue the action against Laguna.

Having rejected Laguna's primary two arguments, the court summarily disposed of Laguna's remaining two arguments: (i) that the trustee was judicially estopped from pursuing the avoidance actions; and (ii) that the avoidance actions were barred by res judicata. With regard to the judicial estoppel argument, the court found that the debtor had never taken two clearly inconsistent positions and, therefore, judicial estoppel was wholly inapplicable. With regard to res judicata, the court stated that Laguna had failed to point to any prior final judgment on the merits of the avoidance actions and, further, that the bankruptcy court had properly stated that "where, as here, an intent to pursue a claim post-confirmation has been manifested in both the confirmed plan and its associated disclosure statement, the res judicata effect of confirmation would not ... preclude pursuit of those claims."

Based upon all of the foregoing, the 5th Circuit affirmed the decision of the bankruptcy court denying Laguna's motion for summary judgment based upon, among other things, consideration of both the plan and disclosure statement for purposes of § 1123 of the Bankruptcy Code. Following this decision, creditors and other parties-in-interest would be well advised to review, as a whole, all of the information contained in a debtor's disclosure statement and plan of reorganization when: (i) considering whether to vote for or against such a plan; and (ii) evaluating potential Chapter 5 exposure in a particular bankruptcy case.

Rudolph J. Di Massa, Jr.., a partner at Duane Morris, is chairman of the Business Reorganization and Financial Restructuring Practice Group. He concentrates his practice in the areas of commercial litigation and creditors' rights. He is a member of the American Bankruptcy Institute, the American Bar Association and its business law section, the Commercial Law League of America, the Pennsylvania Bar Association and the business law section of the Philadelphia Bar Association.

Blake D. Roth is a 2009 graduate of the Earle Mack School of Law at Drexel University and an associate in the business reorganization and financial restructuring practice group at Duane Morris.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Drinker Biddle & Reath LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Drinker Biddle & Reath LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions