American Warrior, Inc. v. Foundation Energy Fund IV-A, L.P.
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 23-30529 (5th Circuit, Aug 01,2024) Published
- Tag(s):
-
- Ruling:
- In affirming the lower courts, the Fifth Circuit holds that state court litigation in Kansas can and should proceed unaffected by a reopened chapter 7 bankruptcy case after the Chapter 7 trustee sold all of the estate's interests to a non-debtor party. The Court affirmed the lower court decisions granting a motion to terminate the automatic stay or deem the stay terminated and refused to review the bankruptcy court's decision to permissively abstain from exercising jurisdiction over the dispute already being litigated in state court.
- Procedural context:
- AWI appealed the district court's order affirming the bankruptcy court's orders. AWI asserted several theories on appeal, all of which were rejected by the Fifth Circuit, including: (1) the bankruptcy court's June 2021 order denying the non-debtor parties' motion to modify the stay so that the state court case could continue was a final order, and thus res judicata to any future motions to modify the stay in the case [5th Cir: No, "finality for purposes of appeal is not the same as finality for purposes of preclusion;" a change in facts or circumstances during a case may justify lifting the stay for a "cause" that was not present earlier in the case, and an earlier denial does not bar a new motion]; (2) the state court lawsuit was void ab initio because of the Debtor's undisclosed mineral interests [5th Cir: No, an unknowing stay violation is voidable, not void; the bankruptcy court's order expressing a clear intent to lift the stay is all that was needed for the state court litigation to proceed; an order annulling the stay was not required]; and (3) the appellate court can review the bankruptcy court's abstention decision [5th Cir: No, under 28 USC 1334(c) as it existed in 1990, and clear precedential authority, appellate review of a bankruptcy court's permissive abstention decision is not allowed].
- Facts:
- Individual Debtors filed a bankruptcy case in Louisiana in 1990 but failed to disclose their undivided working interests and leasehold rights in more than 3,000 acres in Kansas. The Debtors' case was re-opened three separate times to address unadministered assets, most recently in 2021 after the Debtors and other plaintiffs sued American Warrior Inc. (AWI) and other parties in Kansas state court contending that they are entitled to recover some portion of $7 million in oil and gas production. In April 2020, AWI became aware that the Debtors filed bankruptcy but did not include their alleged Kansas oil and gas interests on their schedules. AWI moved to reopen their bankruptcy case in January 2021. The bankruptcy court reopened the case and entered an order staying all actions involving property of the bankruptcy estate. Despite this order, the Debtors and their lawyers continued the Kansas litigation for some period of time. In June 2021, the bankruptcy court denied a motion to modify the stay filed by the non-debtor plaintiffs and third-party defendants in the state court action. The chapter 7 trustee filed an adversary proceeding to determine the nature and factional ownership of the mineral interests at issue in the Kansas litigation. That adversary resulted in the Trustee selling all of the estate's mineral interest rights to AWI in a compromise approved by the bankruptcy court. The bankruptcy court then invited the non-debtor parties to file a motion to abstain in the adversary proceeding and/or a motion to determine if the automatic stay had been terminated. The bankruptcy court entered orders granting relief on the motions.
- Judge(s):
- Jones, Clement, and Wilson
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