5th Circuit Bankruptcy Summary: In re Lothian Oil, No. 12-50462 (Jan. 7, 2014)

This is the latest in several Lothian Oil matters that have been heard by the Fifth Circuit in the last several years.  Lothian Oil filed Chapter 11 in 2007 and confirmed a plan in 2009.  Thereafter, an unofficial committee of shareholders, including several of the parties in this current case, filed a post-confirmation challenge to the plan in the bankruptcy court based on allegations of improper inside dealing.  The bankruptcy court rejected the challenge, which was later affirmed by the Fifth Circuit.  Then, the appellant parties filed an action in New York state court against various corporate entities and individuals involved in the Lothian Oil bankruptcy, based on the same alleged misconduct that was rejected by the bankruptcy court.  The bankruptcy court later entered a permanent injunction against that state court action.  That injunction order was appealed.  While the appeal was pending, the bankruptcy court allowed parties to file motions related to the state court action, as long as the motions were filed in the bankruptcy court.  Several parties filed motions to dismiss.  The bankruptcy court granted some of them on the grounds that it had core jurisdiction over the case and that the plaintiffs lacked standing to assert the claims alleged in the state court action.

On appeal to the Fifth Circuit the court found that the bankruptcy court had core jurisdiction because the matters were inseparable from the bankruptcy context and could not stand along from the bankruptcy case.  The court also noted that standing is jurisdictional and therefore required dismissal.

Chapter 11, improper inside dealing, insolvency-insights, post-confirmation challenge