Raymond James & Associates, Incorporated vs Craig Jalbert
- Summarized by J. Newman , Newman & Newman
- 11 months 2 weeks ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- USDC No. 6:22-CV-5050 (5th Circuit, Jan 30,2024) Published
- Tag(s):
-
- Ruling:
- Even though LAP failed to list Raymond James as a creditor when it filed for bankruptcy, Raymond James is nevertheless subject to the confirmation plan because of its actual knowledge of the underlying proceedings. The bankruptcy judge did not abuse its discretion in denying Raymond James’s Rule 60(b) motion.
The Court refused to rewrite the confirmation plan, which applies to Raymond James and bars the defenses it is attempting to invoke in state court against Jalbert. LAP no longer exists, and neither the bondholders nor post-confirmation entity are its successors-in-interest.
- Procedural context:
- Jalbert filed an adversary proceeding in bankruptcy court and moved for declaratory relief through summary judgment.
Raymond James opposed that motion and filed two of its own—one for summary judgment and one for relief from the confirmation order under Federal Rule of Civil Procedure 60(b). It argued that the provisions of the confirmation order did not apply under these specific circumstances and that the bankruptcy plan was either invalid, inequitable, or both. According to Raymond James, it never would have known that the bondholders would assign their claims to the post-confirmation trust, so it believed the plan’s relevant terms were unenforceable. It further argued that it had a right to assert defenses to limit or reduce any recovery based on the bond sales.
After conducting a hearing, the bankruptcy court agreed with Jalbert. To that end, the court enforced the confirmation order against Raymond James as written, refused to allow Raymond James to invoke affirmative defenses against Jalbert based on LAP’s indemnity obligation, and declined amending the confirmation order under Rule 60(b). Following this ruling, Raymond James appealed to the district court, but to no avail: The district judge affirmed the bankruptcy court’s conclusions in all respects. Raymond James again appeals.
- Facts:
- Louisiana Pellets built a wood processing facility with hopes of mass-producing fuel pellets. The financial challenges caused the entity to close shop and file for bankruptcy just months after its manufacturing began. LAP’s bankruptcy process culminated in a Chapter 11 confirmation plan that transferred its remaining assets into a liquidation trust managed by the appointed trustee, Craig Jalbert. A year after the trust’s creation, third parties assigned certain legal claims to the trust that Jalbert pursued in state court. The claims involved misstatements made by another party, Raymond James & Associates, as it helped raise funds to construct LAP’s facility.
In response to Jalbert’s filing, Raymond James asserted affirmative defenses, citing a pre-bankruptcy indemnity agreement it made with LAP. The issue in this case is whether Raymond James may maintain those defenses against the assigned claims. The answer is no: The express language of the confirmation plan enjoined Raymond James’s defensive maneuver. And, in any event, the post-confirmation trust is the wrong entity against whom to invoke LAP’s indemnity obligation.
In a rural north Louisiana town, LAP sought to build a multi-million- dollar wood processing facility capable of refining raw wood into specialized fuel pellets. Constructing the facility required substantial capital, and to fund the enterprise, LAP sold 300 million dollars in bonds through a public financing authority.2 Perhaps encouraged by the plant’s potential, Raymond James purchased those bonds and resold them to other investors. Accompanying the sales were bond-offering memoranda, detailing the project’s financial viability. To protect its representations in these
memoranda, Raymond James entered into bond-issuing agreements with LAP, requiring LAP to indemnify Raymond James for loss resulting from “any untrue statement or misleading statement of material fact” within the memoranda.
Though bond sales provided the necessary funds to build the project, LAP quickly encountered financial problems, demanding the abrupt cessation of its facility’s operations. Bond default soon followed, and the resulting monetary strains caused LAP to pursue Chapter 11 bankruptcy.
After more than a year of undergoing the bankruptcy process, a bankruptcy judge confirmed a Chapter 11 plan and a corresponding liquidating trust agreement. Under the agreement, LAP transferred its remaining assets and causes of actions to the trust. It did so with the understanding that, if there were recoveries, the appointed trustee, Craig Jalbert, would distribute them to the trust’s beneficiaries.
Meanwhile, Raymond James observed these Chapter 11 proceedings from afar; it “monitored the docket” and even communicated with LAP’s counsel throughout the process. Despite its knowledge of the proceedings, however, it never participated in LAP’s bankruptcy.
Unsurprisingly, some of the biggest losers in LAP’s bankruptcy were the bondholders who purchased the millions of dollars’ worth of bonds from Raymond James. Yet despite their lost investment, they had at least one unaffected means of legal recourse: The bondholders could file suit against Raymond James for its alleged misstatements regarding the bond sales. But rather than file multiple actions independently, the bondholders assigned “all claims, demands, and causes of action” stemming from misstatements in the bond-offering memoranda to Jalbert’s post-confirmation trust more than a year after its creation. With these assignments in hand, Jalbert filed suit against Raymond James in Louisiana state court, alleging violations of state securities laws. In response, Raymond James filed a counterclaim against Jalbert. Citing the indemnity clause in the bond-issuing agreement it made with LAP, Raymond James argued it was entitled “to [c]ompensation...recoupment[,] and setoff.”
But Jalbert believed that Raymond James was prohibited from asserting those defenses. For one thing, Jalbert said that doing so conflicted with the express language in the bankruptcy confirmation order, which was binding in his view. By its terms, the order “permanently enjoined” “all persons who have held . . . a debt, Claim or Interest . . . from . . . asserting any setoff, right of subrogation, surcharge, or recoupment of any kind against any obligation due the Debtors.” Additionally, Jalbert said that the trust and LAP were separate entities. And even though the trust subsumed LAP’s legal claims, Jalbert reasoned that the trust did not subsume LAP’s liabilities. According to Jalbert, this meant that the trust was the wrong party against whom to raise LAP’s indemnity obligation. Jalbert filed an adversary proceeding in bankruptcy court and moved for declaratory relief through summary judgment.
- Judge(s):
- King, Willett, and Douglas, Circuit Judges.
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