- Schermerhorn, et. al. v. Kubbernus, et. al. (In re Skyport Global Communication, Inc.), No. 15-20246 (5th Cir. March 14, 2016)
- Bankruptcy Court’s imposition of inherent power sanctions against litigants who commenced state court litigation including derivative claims, which claims were barred by a confirmed plan of reorganization, was not an abuse of discretion. The court's findings that the sanctioned parties filed the litigation in contravention of the plan were sufficient to satisfy the "bad faith" element required for use of inherent power sanctions.
- Procedural context:
- On appeal from the Southern District of Texas. Affirmed Bankruptcy Court’s sanctions order, and District Court’s similar ruling. The appellants appealed five sanctions orders, but did not appeal the bankruptcy court’s contempt orders for violation of its preliminary injunction. The Fifth Circuit’s opinion is designated as unpublished pursuant to 5th Cir. R. 47.5.
- Skyport Global Communications, Inc. obtained an order confirming its Chapter 11 plan in October 2008. The confirmation order enjoined derivative claims filed on behalf of Skyport or its parent SkyComm, but did not enjoin direct claims against third parties. In February 2010, appellants – who were former minority shareholders in SkyComm - filed a petition in state court against appellees seeking damages for various misdeeds allegedly committed in connection with investments in and management of Skyport and SkyComm. Following removal, the bankruptcy court issued several sanctions orders against appellants for filing the state court lawsuit, which the court found was a collateral attack on the confirmation order. The court found that an appropriate sanction would include compensatory attorney’s fees and expenses reasonably incurred by the defendants. The sanctions orders did not include any punitive damages. Appellants argued that the bankruptcy court erred by failing to make specific findings of bad faith and secondarily contended that their conduct did not rise to the level of bad faith. In ruling against appellants, the court relied upon well-settled authority that a court may impose sanctions against litigants so long as the court makes a specific finding that they engaged in bad faith conduct. In this instance, the bankruptcy court made several findings that the appellants had acted in bad faith by filing their state court petition in contravention of the plan and the confirmation order. In deciding to sanction appellants, the bankruptcy court repeatedly stated that it found their state court petition was not only a direct violation of the injunction provisions contained in Skyport’s Chapter 11 confirmation order, but also an end-run around Section 1144 of the bankruptcy code.
- KING, CLEMENT and OWEN
Thelma McCoy v. USA
Summarizing by Craig Geno
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