HECI Exploration Co., Inc., Matter of

• Citation: 862 F.2d 513
• Decision Date: 13 December 1988
• Docket Number: No. 87-1686,87-1686
• Parties: 10 Employee Benefits Ca 2008 In the Matter of HECI EXPLORATION CO., INC., Successor in Interest to Holloway Exploration Co., Debtor. HECI EXPLORATION CO., EMPLOYEES' PROFIT SHARING PLAN, Appellant, v. Pat S. HOLLOWAY, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 513

862 F.2d 513

10 Employee Benefits Ca 2008

In the Matter of HECI EXPLORATION CO., INC., Successor in

Interest to Holloway Exploration Co., Debtor.

HECI EXPLORATION CO., EMPLOYEES' PROFIT SHARING PLAN, Appellant, v. Pat S. HOLLOWAY, Appellee.

No. 87-1686.

United States Court of Appeals, Fifth Circuit.

Dec. 13, 1988.

Robert L. Yeager, III, Norman Landa, S. Ried Heller, Dallas, Tex., for appellant.

Pat Holloway, Giddings, Tex., pro se.

Appeal from the United States District Court for the Northern District of Texas.

Before RUBIN, KING and WILLIAMS, Circuit Judges.

KING, Circuit Judge:

HECI Exploration Company Employees' Profit Sharing Plan appeals from the district court's affirmance of a bankruptcy court's final judgment that Pat S. Holloway, as a qualified participant in the Plan who had not waived his right to participate, was entitled to receive his interest in the Plan. Finding no reversible error in the district court's decision, we affirm.

I.

The facts and procedural background of this case are set forth in detail in the district court's opinion below. See Holloway v. HECI Explor. Co. Employee's Profit Sharing Plan (In re HECI), 76 B.R. 563, 564-67 (N.D.Tex.1987). Pat S. Holloway ("Holloway") was president, chief executive, and sole active officer of HECI Exploration Company, Inc. ("HECI") ¹ from that company's inception in 1974 until Holloway was terminated by order of a Texas state court in July, 1982. ² HECI was formed to engage in the exploration and development of oil and gas properties. In 1978, at the suggestion of one of HECI's major investors, Holloway decided to establish the HECI Exploration Company Employees' Profit Sharing Plan ("the Plan") in order to boost employee morale. The Plan was to be funded with overriding royalty interests in four of the oil prospects that HECI was engaged in drilling and developing. In 1978 and early 1979, Holloway caused assignments of those overriding royalty interests to be made to the Plan as well as to himself, his then-wife, and his children. HECI's treasurer, Dean Johnson ("Johnson"), and Holloway acted as co-trustees of the Plan. On November 19, 1979, both HECI and Holloway, individually, filed voluntary Chapter 11 bankruptcy petitions. The HECI case was later converted to Chapter 7.

Holloway and Johnson continued to serve as co-trustees of the Plan until Holloway's employment was terminated. In June 1984, Johnson proposed to make a partial distribution of plan benefits to terminated employees, subject to approval by the bankruptcy court. Holloway was not included in the list of proposed distributees. Upon receiving the list, Holloway sent a note to Johnson, asking "on what basis" he was being excluded. No further communication about Holloway's exclusion from the distribution was made, and the funds were ultimately distributed.

Holloway proceeded to file an ERISA action in Texas state court. ³ Holloway sought to recover from the Plan benefits allegedly due him as a Plan participant and to obtain a declaration that he was entitled to future Plan benefits. By the time of the suit, HECI was acting Plan administrator. Acting through Don Navarro ("Navarro"), HECI's trustee in bankruptcy--who, curiously enough, was also the trustee in bankruptcy of Holloway's estate ⁴--HECI intervened in the state court action, removing it to the United States Bankruptcy Court for the Northern District of Texas for consolidation with HECI's Chapter 7 proceeding.

Before trial, a question arose concerning the bankruptcy court's jurisdiction to hear the matter. The bankruptcy court ultimately concluded that Holloway's suit was a "related" proceeding (as opposed to a "core" proceeding) and found that jurisdiction was proper. At the close of trial, the bankruptcy court announced findings of fact and conclusions of law with respect to Holloway's claim (not, as would have been consistent with "related to" jurisdiction, proposed findings of fact and conclusions of law). See In re HECI, 76 B.R. at 566. In addition, the bankruptcy court reserved the right to change or add to its holdings and urged the parties "to submit proposed orders and proposed findings of fact and conclusions of law." The parties did so, and the bankruptcy court subsequently entered in writing amended findings and conclusions. Although the bankruptcy court's first conclusion of law was that it had "jurisdiction over the parties and the subject matter of this adversary proceeding ... as a 'related' proceeding," it nevertheless entered a final judgment.

In that judgment, the bankruptcy court held that Holloway was a qualified participant in the Plan and, as a result, was entitled to receive his interest in the Plan; the only exception, the court found, was that Holloway had waived his right to share in the Plan's June 1984 distribution. The bankruptcy court's decision was based on its finding that Holloway, as a HECI employee, was automatically a Plan participant and that Article III, section 3.01 of the Plan required that a participant give written notice of his election not to participate in the Plan. Holloway had never given written notice of any election not to participate in the Plan to the Plan administrator; consequently, the bankruptcy court held that Holloway never excluded himself or withdrew from the Plan. With respect to the bankruptcy court's finding that Holloway waived his right to participate in the June 1984 distribution, the court reasoned that a "limited waiver" was demonstrated because at the time of the distribution, Holloway was a Plan co-trustee, failed to object to the notice of distribution sent to him, and did not solicit the bankruptcy court's aid to stop the distribution.

The Plan filed timely notice of appeal from the bankruptcy court's decision. In the district court proceeding, the parties raised the question of whether a bankruptcy court, in a proceeding it had determined to be a related proceeding rather than a core proceeding, had the authority to enter findings of fact, conclusions of law and a final judgment, or whether it had the authority only to enter proposed findings and conclusions subject to de novo review by the district court. See id. The district court remanded the case to the bankruptcy court for the limited purpose of having that court clarify its conclusion of law that the proceeding was related. In compliance with that limited remand, the bankruptcy court filed an order setting forth its basis for entering a final judgment. In that order, the bankruptcy court noted that at the inception of trial, it had concluded that the proceeding was related but had inadvertently failed to enter proposed findings and conclusions. The bankruptcy court went on to conclude, as a matter of law: (1) that the adversary proceeding was related; (2) that the Plan, by failing to contest the right of the bankruptcy court to sign a judgment, consented to the bankruptcy court's entry of findings, conclusions, and a final judgment pursuant to 28 U.S.C., Sec. 157(c)(2); and (3) that the Plan impliedly waived its right to object to the jurisdiction of the bankruptcy court and that court's subsequent entry of findings, conclusions, and a judgment.

The district court independently reviewed the nature of the bankruptcy court's jurisdiction and found, as the bankruptcy court had announced, that Holloway's action was a related proceeding as opposed to a core proceeding. Therefore, the Plan was correct that the bankruptcy court should only have proposed findings of fact and conclusions of law. The district court found, however, that by its actions at the post-trial stage, the Plan had indeed waived its right to have an Article III judge make an initial determination of the facts. Consequently, the district court approached the merits of the case as an appellate court rather than as a trier of fact. Neither party appeals the issues ("related" jurisdiction and waiver of the right to have the district court review the bankruptcy court's findings de novo ) which the district court decided prior to addressing the merits of the Plan's appeal, and we do not consider them.

The district court began its examination of the merits by noting that the parties (both in the bankruptcy court and on appeal to the district court) and the bankruptcy court had determined Holloway's rights under the Texas state law of waiver when Holloway's ERISA action to recover benefits and to obtain declaratory relief should have been governed by federal substantive law. Federal law provides that the actions of a trustee in the administration of an employee benefit plan must be sustained as a matter of law unless the plaintiff can demonstrate that those actions were arbitrary or capricious. Dennard v. Richards Group, Inc., 681 F.2d 306, 313 (5th Cir.1982); Ganze v. Dart Indus. Inc., 741 F.2d 790 (5th Cir.1984); Bayles v. Central States, Southeast and Southwest Areas Pension Fund, 602 F.2d 97, 99 & 100 n. 3 (5th Cir.1979).

For two reasons, however, the district court refused to correct the error at such an advanced state of the proceedings. First, the district court noted that "[w]here an issue is not raised in the trial court or in the appellate court briefs or at oral argument, the appellate court will not address it." In re HECI, 76 B.R. at 572 (citing Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 488 n. 7 (5th Cir.1984)). Therefore, by failing to argue the correct standard, the Plan waived any error committed by the bankruptcy court in applying Texas law rather than federal law. Second, the district court explained--relying on the Seventh Circuit's decision in Casio, Inc. v. S.M. & R. Co., 755 F.2d 528, 531 (7th Cir.1985)--that parties can, within broad limits, stipulate the substantive law to be applied to their dispute and can, by not objecting to the trial court's application of the substantive law to their dispute, be deemed to have so stipulated to its application. In re HECI, 76...