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In re Buccaneer Resources, L.L.C.

United States Court of Appeals, Fifth Circuit

January 4, 2019

In the Matter of: BUCCANEER RESOURCES, L.L.C., BUCCANEER ENERGY LIMITED, BUCCANEER ENERGY HOLDINGS, INCORPORATED, BUCCANEER ALASKA OPERATIONS, L.L.C., BUCCANEER ALASKA, L.L.C., KENAI LAND VENTURES, L.L.C., BUCCANEER ALASKA DRILLING, L.L.C., BUCCANEER ROYALTIES, L.L.C., KENAI DRILLING, L.L.C., Debtors
v.
CURTIS BURTON, Appellee MERIDIAN CAPITAL CIS FUND; MERIDIAN CAPITAL INTERNATIONAL FUND; FRED TRESCA; RANDY A. BATES; BRANTA II, L.L.C., Appellants

          Appeal from the United States District Court for the Southern District of Texas

          Before WIENER, SOUTHWICK, and COSTA, Circuit Judges.

          GREGG COSTA, Circuit Judge

         Before Buccaneer Resources LLC filed for bankruptcy, it fired its CEO, Curtis Burton. Burton filed a claim for breach of contract in the bankruptcy, but later dropped that and filed a tortious interference with contract claim in state court against Buccaneer's secured creditor, Meridian Capital CIS Fund. Meridian removed the case to federal court, arguing that the claim belonged in the bankruptcy. The bankruptcy court disagreed, sending the tortious interference claim back to state court. The district court affirmed.

         The dispute about jurisdiction turns on whether the tortious interference claim belongs to Burton, in which case it should be heard in state court, or to the debtor Buccaneer, in which case bankruptcy court is the proper forum. Because the claim seeks to recover for a direct injury to Burton, we agree with the bankruptcy and district courts that he can pursue it in state court.

         I.

         Burton was Buccaneer's CEO from the company's founding in 2006 until May 2014. Along with affiliated entities, Buccaneer was an oil exploration and production company. Although companies that hit gushers get the attention, Buccaneer had the more common experience for oil and gas ventures: it never struck it big.

         As Buccaneer's fortunes dwindled, Meridian Capital CIS Fund became its most important secured creditor. By January 2014, it held all of Buccaneer's senior debt, securing it with a blanket lien over all Buccaneer's assets. The purchase of senior debt rescued Buccaneer from immediate insolvency, but it was only a temporary life raft-Buccaneer filed for Chapter 11 in May.

         Shortly before that bankruptcy filing, Buccaneer fired Burton. Burton says the termination violated the terms of his contract and triggered a penalty worth three years of his base salary. He contends that Meridian was involved in Buccaneer's decision. According to Burton, three of the four Buccaneer board members, that is every board member other than Burton, had close ties to Meridian-some were even appointed by it. In emails, Meridian referred to intriguing assets Buccaneer controlled, assets that could benefit Meridian if Buccaneer was operated by a new CEO it controlled. Burton also alleges that Meridian contacted the board and informed it that Meridian would no longer invest or loan money to Buccaneer unless Burton was fired.

         Burton filed a claim in the bankruptcy but later withdrew it. Buccaneer and Meridian eventually reached a settlement in which Buccaneer released Meridian from any potential claims Buccaneer may have had for $10 million. That settlement was incorporated into Buccaneer's bankruptcy plan.

         Burton then filed this suit against Meridian (and several affiliates and individual advisors for the fund) in state court, alleging tortious interference with contract as well as tagalong claims of conspiracy and assisting. Meridian removed the case to the bankruptcy court, arguing that the claims belonged to the debtor's estate and were thus released in the Buccaneer-Meridian settlement. The bankruptcy court mostly disagreed, concluding that the tortious interference claim belonged to Burton and thus should be litigated in state court. The district court later remanded all claims to state court as the follow-on claims depended on the success of the tortious interference claims. This appeal followed, and the parties agree that the fate of all claims turns on what we decide about the tortious interference claim.

         II.

         Whether the bankruptcy estate or a creditor can pursue a claim against third parties is a recurring issue in bankruptcy law. In re Seven Seas Petroleum, Inc., 522 F.3d 575 (5th Cir. 2008), instructs us to focus on whether the creditor has suffered a direct injury or one that is derivative of an injury to the debtor. Id. at 584. If the harm to the creditor comes about only because of harm to the debtor, then its injury is derivative, and the claim is property of the estate. Id.; see also 11 U.S.C. § 541(a)(1). In that situation, only the bankruptcy trustee has standing to pursue the claim for the estate so that all creditors will share in any recovery. Seven Seas, 522 F.3d at 584.

         As for direct-injury claims that belong to a particular creditor or group of creditors, the simple case is when the claim does not involve any harm to the debtor. These cannot be part of the estate. Id. at 584 (quoting In re Educators Grp. Health Trust, 25 F.3d 1281, 1284 (5th Cir. 1994)). But even when the conduct harms the debtor, the creditor may also have a claim if its asserted injury does not flow from injury to the debtor. This means that the estate and a creditor may have separate claims against a third party arising out of the same events. Seven Seas, 522 F.3d at 585, 590; Ed ...


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