Survey of Bankruptcy Law

By: Davor Rukavina, Joseph J. Wielebinski

Aug 14, 2010

SMU Law Review 

I. INTRODUCTION

This Survey period saw a record number of bankruptcy filings, including sizeable public companies in the automobile and retail sectors, among others. In Texas, while the total number of bankruptcy cases filed increased dramatically from the prior year, the substantive importance of the rulings issued during the Survey period was surprisingly limited. The cases discussed in this Article reflect a broad cross-section of Texas bankruptcy decisions, from the Fifth Circuit’s evaluation of the permissible scope of non-debtor releases in a Chapter 11 plan to the determination by the Houston Fourteenth Court of Appeals of a trustee’s standing in a consumer bankruptcy case following the death of the debtor. Perhaps the most important decision from a bankruptcy practitioner’s perspective is Moglia v. Keith (In re Manchester, Inc.), which interpreted recent guidance from the Fifth Circuit on the retention of claims and causes of action under a Chapter 11 plan. The authors expect that the rulings emanating from the cases filed during the next Survey period will provide a wealth of important legal precedent.

II. APPEALS

In re San Patricio County Community Action Agency
Most bankruptcy practitioners are well acquainted with the doctrine of equitable mootness, usually in the context of plan confirmation or sales. In re San Patricio County Community Action Agency addressed the doctrine with respect to a court-approved settlement between the trustee and the directors and officers (D&O) insurance carrier.

The lenders purchased vehicles from the debtor, a nonprofit organization, and leased the vehicles back to the debtor. The debtor believed that it held title to the vehicles. However, because the debtor had originally purchased the vehicles with funds lent by the State of Texas, the debtor was without authority to transfer the title to the vehicles. Under a theory of negligent misrepresentation, the lenders sued the debtor’s officer who had entered into the transaction, and the lenders sought to recover from the debtor’s D&Os liability insurance. There was no dispute that the insurance did in fact cover the alleged liability. After the debtor filed a Chapter 7 case, the trustee intervened and initiated various actions against the debtor’s directors and officers for mismanagement. The trustee then reached a settlement with the insurance carrier, which was approved by the bankruptcy court, and an interim distribution of the settlement funds was made to the trustee’s counsel and the state of Texas. The lenders appealed on various grounds, the principal one concerning the approval of the settlement. The district court dismissed the appeal on equitable mootness grounds.


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