Adler v. Energy Debt Holdings
- Summarized by Danielle Scott , U.S. Bankruptcy Court, Southern District of West Virginia
- 2 hours 46 min ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 25-20479 (5th Circuit, Jun 16,2026) Not Published
- Tag(s):
-
- Ruling:
- The Fifth Circuit affirmed the district court and bankruptcy court. The bankruptcy court held that a $25,000.00 sanction was warranted when Adler violated court orders by filing an adversary proceeding outside the Challenge Period stated in the cash collateral order and confirmation order.
- Procedural context:
- This appeal arose from an order imposing sanctions against Joshua Adler ("Adler"), the CEO of Sourcewater, Inc. Adler filed a complaint seeking a declaratory judgment subordinating EDH's Note in violation of the cash collateral order and confirmation order. Adler filed the adversary proceeding the day before an emergency hearing to approve the sale. The bankruptcy court imposed a $25,000.00 sanction against Adler for violating its orders. Adler appealed to the district court, which affirmed the monetary sanction as a proper civil contempt sanction. Adler then appealed to the United States Court of Appeals for the Fifth Circuit. The Fifth Circuit affirmed the district court and bankruptcy court, concluding that Adler's adversary proceeding was filed outside of the timeline specified in the bankruptcy court's orders, and therefore the sanction was warranted.
- Facts:
- In March 2023, Sourcewater, Inc. ("Sourcewater") filed a voluntary petition under Chapter 11 of Title 11 of the United States Code ("Bankruptcy Code"). The bankruptcy court issued a cash collateral order on May 1, 2023. Sourcewater and Energy Debt Holdings ("EDH") agreed that if Sourcewater wanted to dispute the perfection or enforceability of the obligations between it and EDH, Sourcewater would have to do so within the "Challenge Period." The Challenge Period was defined as "no later than the earlier of . . . the commencement of a hearing to consider confirmation of a Chapter 11 plan and . . . ninety [] days after the Petition Date." The cash collateral order noted that EDH's loan is not subject to further challenges. Subsequently, the bankruptcy court entered a confirmation order stating that EDH's Class 1B claim will have first priority.
Under the plan, Sourcewater's assets were subject to an auction. Joshua Adler, CEO of Sourcewater, was the successful bidder. On March 27, 2024, Adler initiated an adversary proceeding, seeking a declaratory judgment subordinating the EDH Note, a day before the hearing on the sale motion. The bankruptcy court approved the auction, but Adler failed to close on his successful bid. EDH then closed as the backup bidder. EDH moved for enforcement of the cash collateral order and confirmation order and for sanctions against Adler. The bankruptcy court granted EDH's motion, and determined that a sanction of $25,000.00 was appropriate. Adler appealed the order imposing sanctions.
- Judge(s):
- Richman, Southwick, and Willett
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