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October 2002, the Fleming Firm sought and obtained the district court's permission to file two Enron-related suits in state court. On October 15, 2005, the Fleming Firm again sought the district court's permission (the "Motion"), which was denied, to file thirty-four state court lawsuits alleging seven causes of action. Count I, III, and VI (the "Fraud Claims") had a four-year statute of limitation; Count IV (the "Statutory Claim") had a three-year statute of limitation; and Count II, V, and VII (the "Negligent Claims") had a two-year statute of limitation. The Flemings Firm's client had notice of their claims on October 17, 2001 and thus the four-year statute of limitations would have expired on October 17, 2005. In denying the Motion, the district court said that the Flemings Firm could not have filed the claims within the statute of limitations even if it had leave to file such claims. The Flemings Firm appealed the district court's denial of the Motion. Issues: Whether the district court erred in denying the Motion.
Holding: Affirmed in part and reversed in part, and remand in part to the district court to grant the Motion solely as to the Fraud Claims.
Reasoning: The district court was correct in denying the Motion as it related to the Statutory Claim and the Negligence Claims because the statute of limitations on those claims had long since expired and no tolling exception applied. However, the district court erred in denying the Motion as to the Fraud Claims because the district court "should have allowed the Texas state courts to decide whether the filing of the state petitions relates back to the filing of the motion for leave to file suit (for the claims that have a four-year statute of limitations), meaning that these claims might not be futile." The Fifth Circuit discussed and upheld the district court's denial of the Flemings Firm's three arguments that the Statutory Claim and the Negligence Claims' statute of limitations were tolled. The Fifth Circuit also denied the Flemings Firm's argument that the district court exceeded the scope of the February 15, 2002 Injunction. Lastly, the Fifth Circuit denied the potential defendants' argument that the district court's ruling should be affirmed in its entirety since the Securities Litigation Uniform Standards Act ("SLUSA") preempts all of the thirty-four lawsuits. In denying this argument, the Fifth Circuit noted that to do so would infringe upon notions of federalism because it would be assuming that the Texas state courts would order consolidation of the thirty-four lawsuits.
Facts: High Voltage Engineering Corp. ("HVE") filed chapter 11 bankruptcy in 2004 (the "2004 Bankruptcy") and a plan of reorganization (the "2004 Plan") was confirmed in that case. However, the 2004 reorganization was a failure and HVE again declared chapter 11 in 2005 (the "2005 Bankruptcy"), which ultimately ended up being a liquidation with a liquidation trustee (the "Trustee") appointed. A liquidation plan was affirmed in July 2006. In 2006, the Trustee sued (the "Complaint") Evercore Restructuring, LLC ("Evercore"), Jeffries & Company, Inc. ("Jeffries") and Fried, Frank, Harris, Shriver & Jacobson LLP ("Fried Frank," and, together with Evercore, the "Professionals"), all of which were the Debtor's professionals from the 2004 Bankruptcy. The claims against the Professionals concerned the services that these professionals had provided the Debtor in formulating, promoting and confirming an unworkable plan of reorganization. The Complaint alleged gross negligence and breach of fiduciary duty and alleged that the Professionals were aware that the 2004 Plan was based on outdated information and did not reflect HVE's true financial situation. Evercore filed a motion for judgment on the pleadings and Fried Frank filed a motion to dismiss (collectively, the "Motions") both of which asserted the affirmative defense of in pari delicto since the Debtor was also aware that the 2004 Plan was not accurate. The bankruptcy court dismissed the Complaint as to the Professionals. The district court affirmed.
Issues: Whether the bankruptcy court erred in dismissing the Complaint based on the affirmative defense of in pari delicto.
