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CHS, Inc. v. Plaquemines Holdings, L.L.C.

United States Court of Appeals, Fifth Circuit

November 5, 2013

CHS, INCORPORATED, Plaintiff-Appellant
PLAQUEMINES HOLDINGS, L.L.C., Defendant-Appellee.

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[Copyrighted Material Omitted]

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Andrew Russell Lee, Trial Attorney, Mark Alan Mintz, Tyler John Rench, Attorney, Jones Walker LLP, New Orleans, LA, for Plaintiff-Appellant.

Miles Paul Clements, Benjamin M. Castoriano, Esq., Joseph Nicholas Mole, Esq., Frilot, L.L.C., Stephen O. Scandurro, Scandurro & Layrisson, L.L.C., New Orleans, LA, for Defendant-Appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before STEWART, Chief Judge, KING, and PRADO, Circuit Judges.

KING, Circuit Judge.

Plaintiff-Appellant CHS, Inc., and non-party South Louisiana Ethanol, L.L.C., each owned a fifty percent interest in a company whose sole asset was a tract of land. South Louisiana Ethanol filed for bankruptcy under Chapter 11 of the Bankruptcy Code, and, as part of the confirmed liquidation plan, the bankruptcy court ordered South Louisiana Ethanol to dissolve the company held jointly with CHS and to partition the tract of land. During the pendency of the required state court dissolution lawsuit, South Louisiana Ethanol sold to a third party an option to purchase all of its right, title, and interest acquired from the dissolution of the shared company. The third party then assigned its rights under the option contract to Defendant-Appellee Plaquemines Holdings, L.L.C. CHS responded by filing this suit, contending that South Louisiana Ethanol's option contract with Plaquemines constitutes the assignment of a litigious right under Louisiana law, entitling CHS to redeem the litigious right by reimbursing Plaquemines for the cost of the option contract plus interest. The district court granted Plaquemines's motion to dismiss, holding that the law at issue did not apply to judicial sales. For the following reasons, we AFFIRM.

I. Factual and Procedural Background[1]

In 2005, HPS Development, L.L.C. (" HPS" ), purchased a decommissioned ethanol plant in Louisiana along the Mississippi River. Having decided to revitalize the plant, HPS acquired the necessary equipment and located a contractor to perform renovations. During the summer of 2006, HPS transferred the entire property and its improvements to South Louisiana Ethanol, L.L.C. (" SLE" ), a wholly-owned limited liability company. SLE secured financing and executed contracts to proceed with the renovations.

In the spring of 2007, SLE selected Wachovia Securities to obtain permanent financing through syndication that would be sufficient to complete the plant. However, Wachovia was unable to raise the needed capital. Since SLE had no further funds with which to finance the renovations, it stopped construction on September 20, 2007. SLE continued to pursue funding, but to no avail. Shortly thereafter, SLE's contractor resorted to litigation.

The business venture was at a standstill. SLE owned a non-functioning ethanol plant, together with the plant's surrounding land, and it could not procure additional financing in order to progress with the business. Because the ethanol plant had

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never been completed, the company had no income from its business operations. Essentially, SLE's only value was in its limited assets.

On August 25, 2009, SLE voluntarily filed for Chapter 11 bankruptcy. Over a year later, following lengthy negotiations with several creditors, SLE submitted a Chapter 11 plan (together with a disclosure statement) proposing a complete liquidation of SLE's assets. SLE ultimately filed two amended plans and disclosure statements. The bankruptcy court confirmed the final liquidation plan in April 2011.

Among other things, the plan required that SLE institute legal proceedings to dissolve CHS-SLE Land, L.L.C. (" Land" ), a company that it held jointly with CHS, L.L.C. (" CHS" ), whose sole asset was 4.5 acres of land located along the river. SLE owns a fifty percent interest in Land. The confirmed Chapter 11 plan mandated that all of the assets of SLE (including its interest in Land) be sold as a unit. By the plan's express terms, the sale would be subject to " application, notice, and Bankruptcy Court approval."

SLE filed a petition in state court to dissolve Land in May 2011, claiming that the business purpose of the partnership had been frustrated and that the parties could not agree on a plan of dissolution. CHS resisted the dissolution. While the state court dissolution proceeding was pending, SLE proceeded to implement the confirmed plan. In June 2011, the bankruptcy court approved the bidding procedure for the sale of SLE's assets, which included an " option to purchase all rights, title, and interest [SLE] may have in the dissolved limited liability company, known as [Land], once accomplished judicially or otherwise." CHS and others submitted bids, and the winning bid was submitted by J.A.H. Enterprises (" JAH" ). The bankruptcy court approved the sale in July 2011, and ordered the parties to close the sale on a later date. JAH then assigned its rights and interests in Land to Defendant-Appellee Plaquemines Holdings, L.L.C. (" Plaquemines" ).

As part of the sale, SLE and Plaquemines entered into an option contract which provided that Plaquemines would pay $202,000 for an exclusive option to purchase all right, title, and interest distributed to SLE as a result of the dissolution of Land. The agreement further provided that the acquisition price would be $1, in addition to the option price already paid. Plaquemines and SLE finalized the sale on August 23, 2011, and on September 9, a creditor filed a motion in bankruptcy court to distribute proceeds from the sale conducted by SLE. CHS did not learn that the sale had closed or that Plaquemines had purchased the sale items until the motion to distribute was filed.

On September 22, 2011, CHS filed this suit, alleging that the sale between SLE and Plaquemines constituted the assignment of a litigious right and that it was entitled to redeem that right under Louisiana law. Plaquemines filed a motion to dismiss for failure to state a claim, which the district court granted. The district court held that the Louisiana statute governing the sale of litigious rights, Louisiana Civil Code Article 2652 (" Article 2652" ), did not apply to a sale made " within the framework of a bankruptcy case under Chapter 11 of the Bankruptcy Code," and thus, CHS had failed to plead a plausible claim for relief. CHS timely appealed.

II. Standard of Review

A dismissal for failure to state a claim is reviewed de novo. Gearlds v. Entergy Servs., Inc.,709 F.3d 448, 450 (5th Cir.2013). " ...

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