- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- 23-20436 (5th Circuit, Aug 20,2024) Published
- Tag(s):
-
- Ruling:
- When a confirmed Chapter 11 plan includes provisions protecting third parties from certain claims, the bankruptcy court has statutory, core jurisdiction over a complaint against the protected parties but has to make specific factual findings to establish that it has the constitutional authority to adjudicate such claims. In this case, the bankruptcy court did not make the required findings of fact that would support the conclusion that the plaintiff consented to the bankruptcy court's jurisdiction. Thus, the case was remanded to the bankruptcy court for additional fact-finding.
- Procedural context:
- The bankruptcy court granted the appellees' motion to dismiss the plaintiff/appellant's third amended complaint and denied the plaintiff's motion to remand and recusal motion. The plaintiff timely appealed, and the district court affirmed the bankruptcy court in all respects. Plaintiff then appealed to the United States Court of Appeals for the Fifth Circuit.
- Facts:
- The appellant, Michael Van Deelen, was a shareholder of McDermott International, Inc. McDermott filed a Chapter 11 petition and filed a Chapter 11 plan that included provisions exculpating certain persons, including current and former employees who were the appellees in this case, from non-fraud claims arising out of McDermott's bankruptcy. The bankruptcy court confirmed McDermott's plan over Van Deelen's objections.
Following confirmation of the plan, Van Deelen sued the appellees in state court, alleging that the Chapter 11 proceedings and events leading to the bankruptcy were fraudulent. Van Deelen asserted claims for conversion, statutory and common law fraud, breach of fiduciary duty, and conspiracy.
The appellees removed the state-court litigation to bankruptcy court. Van Deelen asked the bankruptcy court to remand or abstain from ruling. While this motion was pending, the appellees moved to dismiss Van Deelen's claims because they were barred by the plan's exculpation clause or because Van Deelen failed to meet the heightened pleading requirements of Fed. R. Civ. P. 9(b).
Van Deelen then doubled down, filing a motion to recuse the bankruptcy judge who oversaw McDermott's Chapter 11 case. Bankruptcy Judge Marvin Isgur denied Van Deelen's recusal motion.
The bankruptcy court subsequently allowed Van Deelen to amend his complaint. The amended complaint alleged only common-law fraud and negligent misrepresentation. The appellees filed a new motion to dismiss because the negligent misrepresentation claim was barred by McDermott's plan and Van Deelen again failed to satisfy the requirements of Rule 9(b)c
Van Deelen filed another motion seeking leave to amend his complaint, with a proposed second amended complaint attached as an exhibit. Rather than rule on Van Deelen's motion, the bankruptcy court conducted a hearing and allowed Van Deelen another attempt to amend his complaint.
Van Deelen filed another complaint (the "third amended complaint"), alleging common law fraud against appellees. Appellees moved to dismiss.
The bankruptcy court granted appellees' motion to dismiss and denied Van Deelen's motion to remand or abstain.
- Judge(s):
- Higginson, Willett, and Oldham, Circuit Judges
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