Highland Captl Fund Mgt. Fund Advisors, L.P. v. Highland Captl Mgmt, L.P.
Picking up where Serta Simmons left off, the Fifth Circuit nixes another creative chapter 11 plan.
- Rochelle Quick Take
View Rochelle Summary- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- 23-10534 (5th Circuit, Mar 18,2025) Published
- Tag(s):
- Ruling:
- Finding that the Bankruptcy Court misinterpreted its opinion from a prior appeal, the Fifth Circuit reverses in part the confirmation order and remands to the District Court to rewrite the plan's Gatekeeping Clause to protect only the Debtor, its independent directors, the Committee, and its members. At least within the Fifth Circuit, Section 105 and the Barton Doctrine do not empower a Bankruptcy Court to impose a "gatekeeping," pre-filing injunction that prohibits non-debtors from filing a civil action against other non-debtors without the Bankruptcy Court's pre-approval.
- Procedural context:
- On direct appeal to the Fifth Circuit from the Bankruptcy Court's order confirming a plan of reorganization revised after a prior appeal. See 48 F.4th 419 (5th Cir. 2022). Case remanded to the District Court "to revise the Plan’s definitions of both 'Exculpated Parties' and 'Protected Parties' to read simply: 'collectively, (i) the Debtor; (ii) the Independent Directors, for conduct within the scope of their duties; (iii) the Committee; and (iv) the members of the Committee in their official capacities, for conduct within the scope of their duties.'”
- Facts:
- Highland Capital Management, L.P. was a Dallas-based investment firm co-founded by James Dondero, who served as an officer and director when it filed a petition for relief. Dondero stepped down as an officer and director during the case and became adverse to the Unsecured Creditors' Committee, independent directors, and others in litigation, which included sanctions awards against him affirmed in other appeals. The Bankruptcy Court ultimately confirmed a plan including an Exculpation Provision that "permanently extinguished" claims relating to most conduct in the case (aside from bad faith, fraud, gross negligence, and criminal or willful misconduct) that might possibly have been brought against the Debtor, its employees, general partner, independent directors, CEO/CRO, the Unsecured Creditors' Committee and its members, the professionals retained by the Debtor or Committee, and related persons. The plan also included a "Gatekeeping Clause" that barred any claims against a broader swath of persons unless the plaintiff first persuaded the Bankruptcy Court that the proposed claim was colorable and obtained an order from the Bankruptcy Court authorizing the plaintiff to bring the claim. In an earlier appeal, the Fifth Circuit held that the definition of parties protected by the Exculpation Provision was broader than the law allowed. On remand, Dondero argued that the Fifth Circuit's opinion required narrowing the scope of persons protected by the Gatekeeping Clause. The Debtor argued otherwise, and the Bankruptcy Court entered a revised confirmation order with a broad Gatekeeping Clause. This direct appeal followed.
- Judge(s):
- Elrod, Willett, and Duncan