2009 Chapter 11 Recent Developments (Part I)

Southern District of Texas, which was the same court for purposes of SLUSA. There is no question that SLUSA has both removal and preemption powers that are based on whether a claim is a covered claim in the statute. Contrary to the plaintiffs' arguments though, a court cannot test preemption at the time of removal because it would impermissibly limit the reach of preemption under SLUSA and would be too narrow of an interpretation of SLUSA. It was proper for the district court to consider preemption on a motion to dismiss.

b.

As to the requirement that the claims be 'joined, consolidated, or proceeding in a single action,' the court, again relying on Worldcom, noted that the Fleming cases were filed by the same attorneys, were alleging largely the same facts and using the same expert reports, and were primarily on the same procedural track. Basically, the plaintiffs were acting in unison despite being plaintiffs in separate cases.

c.

Lastly, it was important to note that SLUSA was not being used as a sword for a finding on preemption because the cases were removed to federal court not under SLUSA but pursuant to bankruptcy jurisdiction.

d.

With regard to an argument that SLUSA is on a collision course with the MDL, the court notes that the Fleming cases were before the district court by virtue of direct filing or direct removal, not the MDL. Additionally, consolidation of the Fleming cases did not force the cases to proceed in unison. However, because the Flemings cases plaintiffs acted in such a manner (in unison), they fall within SLUSA and are preempted.

Dynasty Oil and Gas, LLC v. Citizens Bank, et. al. (In re United Operating, LLC), 540 F.3d 351 (5th Cir. 2008)

Facts: Dynasty Oil and Gas ("Dynasty") declared chapter 11 bankruptcy in early 2004. Due to the fact that Dynasty had oil and gas properties that were not in use, Citizens Bank ("Citizens") moved to have an operator appointed to bring the properties back into production. The bankruptcy court appointed Wildcat Energy, LLC ("Wildcat") and its principal, Roger Becker, to operate Dynasty, which it did for about seven months until Dynasty's plan was confirmed in November 2004. Citizens was authorized to pay Wildcat's fees out of the DIP account. Under the plan, another creditor, Saber Resources, LLC ("Saber"), purchased all of Dynasty's assets for a lump-sum payment to Citizens of $2.5 million. Unsecured creditors received cents on the dollar and equity received nothing. Under the plan, Dynasty would not be revested into a healthy going-concern company at confirmation since Saber was buying most of Dynasty's assets. But, the plan provided that Dynasty and the Official Committee of Unsecured Creditors (the "Committee") retained limited powers to pursue certain claims on behalf of the estate. Post-confirmation, the Committee sued Citizens and Wildcat for, among other things, unnecessary work on certain properties, Citizens' wrongful payment to Wildcat for the unnecessary work, and needless depletion of Dynasty's DIP account. Certain of the Committee's state law claims were dismissed, then Wildcat was dismissed and Citizens settled. Thereafter, Dynasty sued Citizens, a Citizens loan officer, Wildcat and Becker in Texas state court. The bases for Dynasty's lawsuit were certain state-law claims for unnecessary work, not enough work and misrepresentation. After removing the case to the bankruptcy court, the bankruptcy court dismissed the claims for a number of reasons: they were barred by the resolution of the Committee's lawsuit, res judicata and collateral estoppel.

Issues: Whether Dynasty, a reorganized debtor, has standing to pursue claims based on the defendants' pre-confirmation management of the estate's assets.

Holding: bankruptcy court affirmed but because Dynasty had no standing to sue.

Rules: Upon confirmation of a plan, an estate ceases to exist and loses its status as debtor in