The U.S. Court of Appeals for the Fifth Circuit held that where a mortgagee rescinded a notice of intent to accelerate and then filed a foreclosure action without first issuing a new notice of intent to accelerate, it failed to meet its burden to show clear and unequivocal notice of intent to accelerate prior to filing suit, and therefore was not entitled to foreclosure judgment.

Accordingly, the Fifth Circuit reversed the ruling of the trial court granting summary judgment in favor of the bank, and dismissed the foreclosure action.

The ATP Oil & Gas Corporation bankruptcy case (Case No. 4:12-bk-36187, S.D. Texas) (“ATP”) involved the intersection of energy and bankruptcy law on a variety of issues. Most recently, the Fifth Circuit Court of Appeals rendered a decision arising from that case dealing with the relative rights or priorities between the holder of overriding royalty interests (“ORRI”) and parties asserting lien claims or privileges under the Louisiana Oil Well Lien Act (“LOWLA”) (La. Rev. Stat § 9:4861) in a case titled OHA Investment Corporation f/k/a NGP Capital Resources Company v.

The Bottom Line

Fifth Circuit Rejects Breach of Fiduciary Duty and Fraudulent Transfer Claims

By Michael L. Cook*

As we described in our client alert dated September 14, 2016, in the aftermath of the real estate downturn from 1989 to 1993, when real estate mortgage lenders began to contemplate making new mortgage loans, they sought to create new legal structures to prevent their prospective borrowers from filing for Chapter 11, and to ameliorate the adverse consequences, if such a filing were to occur.

In our client alert dated September 14, 2016, we discussed the decision of the United States Bankruptcy Court for the District of Delaware in In re Intervention Energy Holdings, LLC, which refused to invalidate a bankruptcy filing made without the consent of its lender who held a “Golden Share” as void against federal public policy.

The Bottom Line

“Officers and directors of [an operating corporate debtor] have fiduciary duties to the corporation — not the corporation’s creditors” under Texas law, held the U.S. Court of Appeals for the Fifth Circuit on Oct. 27, 2017. In re ATP Oil & Gas Corp., 2017 U.S. App. LEXIS 21337, *7 (5th Cir. Oct. 27, 2017). In affirming the district court’s dismissal of a Chapter 7 bankruptcy trustee’s complaint, the Fifth Circuit rejected the trustee’s breach of fiduciary claims against officers and directors for permitting “the payment of . . .

The U.S. Court of Appeals for the Fifth Circuit held that the trial court had jurisdiction to hear a case based on a final foreclosure order entered in Texas state court, and that the borrowers’ due process rights were not violated where the state court entered a foreclosure order without first having a hearing, in violation of the state statute. 

Undersecured creditors face unique challenges because they are neither fully secured nor fully unsecured. Beyond the obviously undesirable issue of being upside-down on their deal, undersecured creditors often are exposed to preference liability for those payments they received in the 90 days prior to the debtor filing bankruptcy. This is especially true where an aggressive trustee is looking to create value or where an opportunistic trustee sees a chance to make a quick buck.