Compton v. Anderson (In re MPF Holdings US LLC)

Compton v. Anderson (In re MPF Holdings US LLC), No. 11-20478 (5th Cir. Nov. 14, 2012)
Vacating the Bankruptcy Court, the Fifth Circuit held that a reservation of jurisdiction clause of the plan of reorganization was sufficiently specific and unequivocal because the plan stated the basis of recovery and referenced Exhibits to the debtor’s statement of financial affairs (“SOFA”), which identified the defendants by name. The Fifth Circuit, however, concluded that it could not determine whether the litigation trustee had standing to bring, and whether the Bankruptcy Court had jurisdiction to hear, the claims because the Bankruptcy Court expressly declined to consider the argument that the plan carved out the claims against the defendants. Accordingly, the Fifth Circuit remanded, instructing the Bankruptcy Court to determine the standing issue for each adversary proceeding.
Procedural context:
A direct appeal from the Bankruptcy Court for the Southern District of Texas. The Fifth Circuit reviewed de novo the Bankruptcy Court’s order dismissing for a lack of standing each of the adversary proceedings.
The debtor’s chapter 11 plan of reorganization created a litigation trust. Specifically, the plan reserved to the litigation trustee “all Causes of Action, including but not limited to, (i) any Avoidance Action that may exist against any party identified on Exhibits 3(b) and (c) of the [d]ebtors’ [SOFA] . . . shall be transferred to the [l]itigation [t]rustee.” The Plan defined “Avoidance Actions” as “any and all actual or potential claims or Causes of Action to avoid a transfer of property or an obligation incurred by the Debtors pursuant to any applicable section of the Bankruptcy Code, including §§ 542, 543, 544, 545, 547, 548, 549, 550, 551, 553, and 742(a).” However, the plan excluded “any Cause of Action released in connection with or under the [p]lan or by prior order of the [Bankruptcy] Court” from the scope of reserved claims. Shortly after confirmation, the litigation trustee commenced multiple avoidance actions against various vendors identified on the exhibits to the debtor’s SOFA. The vendors then moved to dismiss the avoidance actions, arguing, among other things, that (i) the debtor had released the vendors from all claims and (ii) the preference actions were barred because the debtor had assumed the vendor contracts. The Bankruptcy Court raised sua sponte the issue of whether the plan’s reservation of avoidance actions was sufficiently “specific and unequivocal” for the litigation trustee to have standing.
Stewart, DeMoss, Graves

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