South Louisiana Ethanol, LLC vs. Messer, et al
ORDER AND REASONS denying 12 Motion to Dismiss for Lack of Jurisdiction. Signed by Judge Ivan L.R. Lemelle. (ijg, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SOUTH LOUISIANA ETHANOL, LLC
ERIC JACOB MESSER, ET AL
ORDER AND REASONS
Before the Court is Third Party Defendant ENGlobal, U.S.,
Inc.’s (“ENGlobal”) Motion to Dismiss the Third-Party Demand of 1
Fireman’s Fund Insurance Company(“Fireman’s Fund”) (Rec. Doc. No.
12), opposed by Fireman’s Fund.(Rec. Doc. No. 13). Accordingly, and
for the reasons articulated below,
IT IS ORDERED that Defendant’s Motion to Dismiss is DENIED.
On August 25th, 2009, South Louisiana Ethanol, LLC (“SLE”)
filed for Chapter 11 bankruptcy, followed by a ranking suit1 to
determine the priority of its creditors. In the suit, ENGlobal
Engineering, Inc. (“EEI”) and ENGlobal Construction Resources, Inc.
(“ECR”)2, were both named as creditors, and on October 26th, 2010,
the Court approved a settlement agreement resolving the claims of
various creditors, including EEI and ECR (Rec. Doc. No. 13-3)3.
Following the settlement, the Court also approved SLE’s disclosure
statement (Rec. Doc. 403)4, which was served on EEI and ECR, and
Adversary Proceeding No. 09-01119.
Instant Third Party Defendant, ENGlobal, is successor-ininterest to both EEI and ECR.
Also located in the record as Case No. 09-12676 (Rec. Doc. No.
Case No. 09-12676.
confirmed SLE’s Chapter 11 Bankruptcy Plan (Rec. Doc. No. 13-1).
On May 5th, 2011, after approval of the bankruptcy plan, SLE
filed a complaint against Fireman’s Fund, insurer of Precision
Combustion Technology, LLC (“PCT”), seeking reimbursement for
insured losses on equipment owned by SLE that was allegedly
misappropriated or abandoned by PCT. The complaint rests on SLE’s
contracts for engineering work with EEI and ECR (now ENGlobal) and
EEI and ECR’s subcontracts with PCT, which allegedly incorporated
the terms of the original contracts between SLE, EEI, and ECR by
reference. (Rec. Doc. No. 1).5
Consequently, Fireman’s Fund filed a third party complaint
against ENGlobal, alleging that if Fireman’s Fund was liable to
SLE, then Fireman’s Fund can seek recovery from ENGlobal through
subrogation of the claim that SLE would have against EEI and ECR
(now ENGlobal) under the original contract. ENGlobal has now filed
the instant motion to dismiss the third party complaint.
jurisdiction to consider the third party claim because Fireman’s
Fund lacks standing to assert the Third Party Demand. Specifically,
ENGlobal argues that the claim Fireman’s Fund seeks to assert was
not preserved in the confirmed bankruptcy plan. ENGlobal urges that
SLE did not preserve the equipment misappropriation/conversion
claim in the bankruptcy plan, and thus SLE does not have standing
Case No. 11-01039.
to bring the claim before the court. ENGlobal also urges that if
the claim was not preserved by the bankruptcy plan, then it is now
barred by the doctrine of res judicata and can no longer be
Secondly, ENGlobal asserts that, under the October 26th,
2011 settlement plan, SLE released ENGlobal from any further
against ENGlobal in the bankruptcy plan. (Rec. Doc. No. 12-1 at 3).
Fireman’s Fund contends that SLE’s claim against ENGlobal was
preserved in the bankruptcy plan and that the settlement agreement
between ENGlobal and SLE did not release ENGlobal from any claims.
Therefore, Fireman’s Fund argues, there is a potential valid claim
from SLE against ENGlobal that Fireman’s Fund can subrogate, giving
Fireman’s Fund standing to make the Third Party Demand.
I. Standard of Review
Under Federal Rule of Civil Procedure 12(b)(1), if a district
court lacks jurisdiction over the subject matter of a plaintiff’s
claims, dismissal is required. Fed.R.Civ.P. 12(b)(1). In other
words, “[a] case is properly dismissed for lack of subject matter
jurisdiction when the court lacks the statutory or constitutional
power to adjudicate the case.” Home Builders Ass’n of Mississippi,
Inc. v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir.
1998). Standing is one element of the constitutional power to
adjudicate a case, and is “based mainly on the case-or-controversy
Constitution.” National Hous. Exch. v. Villarrubia, No. 95-3745,
controversy requirement of Article III to properly invoke the
court’s jurisdictional powers, standing must be resolved as a
preliminary matter.” Lewis v. Knutson, 699 F.2d 230, 237 (5th Cir.
1983). A party seeking to invoke jurisdiction has the burden of
proving its existence, so the burden is on the plaintiff to
establish standing to bring the claim. Ramming v. United States,
281 F.3d 158, 161 (5th Cir. 2001).
II. Preservation of SLE’s Claim
Upon confirmation of a Chapter 11 Bankruptcy Plan, the debtor
estate ceases to exist and therefore loses the ability to pursue
claims that the estate possessed pre-confirmation. In re United
Operating, L.L.C., 540 F.3d 351, 355 (5th Cir. 2008). An exception
to this rule exists under 11 U.S.C. § 1123(b)(3), which allows a
reorganized debtor to bring a claim that belonged to the preconfirmation debtor, provided that the claim was preserved in the
confirmed bankruptcy plan. Id. “For a debtor to preserve a claim,
the plan must expressly retain the right to pursue such actions.”
Id. at 355 (internal quotation marks omitted). Furthermore, because
the purpose of preserving claims is to give creditors notice of the
estate’s potential benefits and liabilities, “[t]he reservation
must be specific and unequivocal.” Id. A statement preserving a
claim need not, however, be as specific as to name particular
reservation of individual claims. Id. Additionally, courts may
consider the contents of both the confirmed plan itself and the
disclosure statement to determine if a claim has been preserved.
Spicer v. Laguna Madre Oil and Gas, L.L.C. (In re Texas Wyoming
Drilling, Inc.), 647 F.3d 547, 551(5th Cir. 2011).
In the instant case, the relevant statements are listed in the
“Preservation of Causes of Action” portion of SLE’s approved
disclosure statement, preserving SLE’s rights to:
ii). Prosecute and/or defend any claims of third
parties who were custodians of SLE’s equipment or
attachments thereto who may have damaged and/or
sold these movables, without permission and consent
vii). Causes of action relating to equipment
formerly in possession or control of Precision
Combustion Technology, LLC or Agrico.
(Rec. Doc. No. 13-2 at 44). A plain reading of the disclosure
misappropriation or conversion of equipment. ENGlobal contends,
however, that SLE did not preserve this claim against ENGlobal.
Bankruptcy Court has previously held that “the retention of rights
[contained in the above quoted portion of the disclosure] was
sufficient to put SLE’s creditors on notice of the claims SLE
planned to pursue” with regard to the same claim that ENGlobal has
been brought into as a Third Party Defendant. (Rec. Doc. No. 75 at
“specific and unequivocal” requirement for claim preservation has
Second, in light of 5th Circuit precedent, there is no
requirement for SLE to specify all defendants against whom the
claim is preserved. E.g., In re United Operating, 540 F.3d at 355;
In re Texas Wyoming Drilling, Inc., 647 F.3d at 551,552. ECI and
ECR, as creditors of SLE, were served with the disclosure statement
that contained a “specific and unequivocal” preservation of the
equipment claim. The claim is therefore preserved, and the argument
that the claim is not preserved with regard to ENGlobal as a
specific defendant is inapposite.
ENGlobal also contends that because SLE’s claim was not
preserved in the bankruptcy plan and disclosure statement, the
judicata. However, because this Court finds that the claims were
preserved by the plan, the issue of Res Judicata in the instant
case is moot. “Res judicata does not apply where a claim is
expressly reserved by the litigant in the earlier bankruptcy
Case No. 11-1039.
proceeding.” Ries v. Paige (In re Paige), 610 F.3d 865, 875 (5th
Cir. 2010) (quoting Browning v. Levy, 283 F.3d 761, 774 (6th Cir.
III. Release of ENGlobal
ENGlobal also asserts that the disclosure statement can not be
read to include a claim by SLE against ENGlobal, successor-ininterest to EEI and ECR, because SLE released EEI and ECR from any
claims when all three parties participated in the September 21st,
2010 settlement agreement.
The Order Approving and Enforcing
Settlement Agreement contains a series of emails regarding the
terms of the settlement agreement, and contains the following
language on the release of specified claims:
(1) “Englobal would relinquish any other claims against SLE.”
(Rec. Doc. 235 at 6).
(2) “The recovery of ENGlobal and its subsidiaries...would be
capped or limited to $8,000,000 and ENGlobal would relinquish any
other claim against SLE;” Id. at 7.
(3) “J&C welding and IPT would agree that whatever recovery
that was negotiated by ENGlobal and its subsidiaries would include
their recovery and would relinquish all claims against SLE.” Id.
(4) “ENGlobal will be responsible for resolving the claims of
J&C Welding and IPT, out of the proceeds of ENGlobal’s recovery
from the sale of assets. ENGlobal will not be responsible for the
claims of Benchmark Broad USA, CNS, RB Ethanol or Whitney Bank.”
Id. at 10.
A plain reading of the entirety of the settlement agreement,
including the excerpts outlined above, reveals that there is no
language releasing ENGlobal from claims. ENGlobal plainly released
SLE, but there is no language in the document reciprocating that
release. ENGlobal, therefore, offers no actual evidence that it has
been released from claims. While the oddity of this result is
obvious, and perhaps there was an intent to release SLE’s claim
against ECI and ECR, that intent was not clearly and unambiguously
expressed in the written documents above.
Accordingly, and for the reasons articulated above, IT IS
ORDERED that Defendant’s Motion to Dismiss is DENIED.
New Orleans, Louisiana, this 25th day of June, 2012.
UNITED STATES DISTRICT JUDGE