In re Coho Energy Inc.

Decision Date20 December 2004
Docket NumberNo. 04-10173.,No. 03-10268.,03-10268.,04-10173.
PartiesIn the Matter of COHO ENERGY INC., Debtor. Gibbs & Bruns LLP, Cross-Appellee, v. Coho Energy Inc., Appellee-Cross-Appellant, v. Thomas & Culp LLP, Appellant-Cross-Appellee. Coho Energy Inc., Appellee-Cross-Appellant, v. Gibbs & Bruns LLP, Cross-Appellee, Thomas & Culp LLP, Appellant-Cross-Appellee. In the Matter of Coho Energy, Inc., Coho Resources, Inc., Debtors. Gibbs & Bruns, LLP, Appellee, v. Thomas & Culp LLP, Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Marc Sands Culp (argued), Law Offices of Marc S. Culp & Associates, Denton, TX, for Thomas & Culp LLP.

Gerald C. Conley, Tonya M. Gray, Andrews & Kurth, Dallas, TX, for Coho Energy Inc.

Thomas S. Hoekstra, Eric Gordon Walraven, Brian N. Hail (argued), Jeffrey Richard Erler, Godwin Gruber, Dallas, TX, for Gibbs & Bruns LLP.

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

Before BENAVIDES, DENNIS and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

The following case arises from two law firms' consecutive representation of a single debtor in a settlement of a breach of contract by a capital venture firm. Both firms and the debtor appeal the firms' fee awards from bankruptcy court, and one firm appeals the subsequent settlement between the other two parties. For the reasons below, this Court dismisses the settlement appeal and affirms the district court's fee award.

I. FACTS AND PROCEEDINGS

Coho Energy, Inc. ("Coho") is a publicly traded oil and gas exploration and production company. In March, 1999, after a contract dispute for an infusion of capital from Hicks, Muse, Tate & Furst Equity ("Hicks Muse"), Coho hired law firm Thomas & Culp ("Thomas") to represent Coho in the resulting litigation. Thomas agreed to represent Coho for a thirty-percent contingent fee. Approximately three months later, Coho filed for Chapter 11 bankruptcy protection. The bankruptcy court approved Thomas as counsel in the Hicks Muse litigation and approved the contingent fee arrangement under 11 U.S.C. § 328 (authorizing the bankruptcy court to approve professionals' fees).

Upon confirmation of Coho's Chapter 11 Plan of Reorganization, the bankruptcy court appointed a new CEO and President, Michael Y. McGovern. He immediately wrote to the bankruptcy judge to address "problems that have arisen in the relationship between Coho and its counsel in the litigation involving Hicks, Muse." Coho subsequently fired Thomas and hired another law firm, Gibbs & Bruns ("Gibbs") to continue the Hicks Muse litigation. The bankruptcy court again approved a thirty-percent contingency fee arrangement, this time with Gibbs.

Coho and Thomas could not agree on what fees Thomas was owed for its work to prepare the litigation before it was fired. The fee agreement between Coho and Thomas contained an arbitration clause. Thomas moved the bankruptcy court for arbitration of the fee dispute in October, 2000. The court largely adopted Thomas's recommended order in January, 2001, which identified three discrete issues for the panel of arbitrators to decide: first, whether Thomas was terminated "for cause;" second, the reasonable fee that Thomas would be paid under a theory of quantum meruit; and third, the reasonably estimated sum of money Thomas would have earned under the contingent fee contract if it had not been fired (damages). The panel concluded in July, 2001 that Thomas was fired for cause, that the value of quantum meruit was $2.9 million and that, in the alternative, full contract damages were equal to $5.9 million. During the arbitration, Coho, represented by Gibbs, settled with Hicks Muse for $8.5 million. The arbitrators had not been informed of this settlement.

In January, 2002, the bankruptcy court heard a motion by Thomas to enforce the arbitration panel's quantum meruit finding, a motion by Coho to approve its $8.5 million settlement with Hicks Muse, and the application of Gibbs for its thirty-percent stake in the outcome of the Hicks Muse settlement according to its fee agreement. There was no objection either to Gibbs's application for $2.55 million — the thirty percent of the $8.5 million settlement — and the court awarded the amounts on January 10, 2002. Also on January 10, 2002, the bankruptcy court reduced Thomas's arbitrated award of $2.9 million to $2.55 million due to the "unanticipated developments" of the low settlement amount, according to 11 U.S.C. § 328(a). On January 22, 2002, Thomas objected in the Northern District of Texas to the bankruptcy court's reduction of the arbitration award. On January 28, 2002, Coho moved the bankruptcy court to set aside the judgment and recommended that Thomas receive $956,000 in fees. Thomas replied, again arguing for the original arbitration award of $2.9 million.

On March 11, the bankruptcy court issued its final order, providing that the two law firms would split a single fee of $2.55 million. It calculated the fees using the $2.9 million amount that the arbitration panel awarded to Thomas and then adding to that amount $1.9 million, which the court believed would be an equally reasonable fee to pay Gibbs. Then, the bankruptcy court took the percentage of the total $4.9 million of each firm's quantum meruit amount and multiplied those percentages by $2.55 million, which is 30% of the Hicks Muse settlement amount. Based on this calculation, it ordered that $1,540,625 be paid to Thomas and $1,009,375 to Gibbs. Thomas and Coho cross-appealed this decision. On February 28, 2003, the district court found that, as to Thomas's fees, the bankruptcy court acted on a timely-filed motion and did not abuse its discretion. Thomas and Coho then appealed to this Court.

Also on February 28th, 2003, the district court vacated the bankruptcy court's reduction in Gibbs's fees for lack of jurisdiction. Coho appealed that decision. On March 7, 2003, Gibbs and Coho settled for $2.3 million. The bankruptcy court denied this settlement agreement on June 16, 2003. Gibbs appealed that decision to the district court, which affirmed the settlement, awarding Gibbs $2.3 million. Thomas then appealed that settlement and that appeal was challenged by Gibbs for lack of standing. Both sides briefed the motion to dismiss the appeal for lack of standing and that appeal was consolidated into the instant case.

II. DISCUSSION
A. Thomas Has No Standing to Appeal the Gibbs/Coho Settlement
1. Standard of Review

"In ruling on a motion to dismiss for want of standing, both the trial and reviewing courts must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Rohm & Hass Tex., Inc. v. Ortiz Bros. Insulation, Inc., 32 F.3d 205, 207 (5th Cir.1994) (quoting Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)) (internal quotations omitted). This Court uses a permissive standard to assess the actuality of the harm alleged by appellant for the purpose of standing. Id.

2. Analysis

Bankruptcy courts are not authorized by Article III of the Constitution, and as such are not presumptively bound by traditional rules of judicial standing. Rohm, 32 F.3d at 210 n. 18. Instead, standing in bankruptcy court originally was governed by the statutory "person aggrieved" test. 11 U.S.C. § 67(c) (1976) ("A person aggrieved by an order of a referee may ... file with the referee a petition for review....") (repealed 1978). Congress did not include this provision when the code was revamped in 1978. Notwithstanding its repeal, courts subsequently have found that this test continues to govern standing. Rohm, 32 F.3d at 210 n. 18 ("Although the applicable statute has since been repealed, bankruptcy courts still limit appellate standing to those `aggrieved.'"); In re Hipp, Inc., 859 F.2d 374, 375 (5th Cir.1988) (citing a pre-1978 case, In re First Colonial Corp., 544 F.2d 1291, 1296 (5th Cir.1977)); see also In re Westwood Cmty. Two Ass'n, 293 F.3d 1332, 1335 (11th Cir.2002); In re P.R.T.C., Inc., 177 F.3d 774, 777 (9th Cir.1999).

The "person aggrieved" test is an even more exacting standard than traditional constitutional standing. See, e.g., P.R.T.C., 177 F.3d at 777 ("To prevent unreasonable delay, courts have created an additional prudential standing requirement in bankruptcy cases: The appellant must be a `person aggrieved' by the bankruptcy court's order.") (emphasis added). The "case or controversy" limitation of Article III dictates that the alleged harm is "fairly traceable" to the act complained of. See, e.g., Logan v. Burgers Ozark Country Cured Hams, Inc., 263 F.3d 447, 460 (5th Cir.2001). Because bankruptcy cases typically affect numerous parties, the "person aggrieved" test demands a higher causal nexus between act and injury; appellant must show that he was "directly and adversely affected pecuniarily by the order of the bankruptcy court" in order to have standing to appeal. In re Fondiller, 707 F.2d 441, 443 (9th Cir.1983).

Thomas fails to demonstrate standing because Thomas is not "directly and adversely affected pecuniarily by" the order. In re Cajun Elec. Power Co-op., Inc., 69 F.3d 746, 749 (5th Cir.1995); see also Rohm, 32 F.3d at 210 n. 18. In Rohm, a debtor that had disavowed any claims to an interpleaded fund disputed the bankruptcy court's order of priority for the distribution to debtor's creditors, arguing for standing based on the different remedies available to the each of the creditors, not all of whom would have their claims satisfied. 32 F.3d at 207. This Court denied standing because the debtor was not a claimant to the fund and, as such, was only indirectly affected by the order establishing priority. Id. at 212.

Thomas's claim to injury due to exhaustion of the fund through the settlement is both indirect and improbable. Even Thomas's appellate brief admits that its best argument for standing is speculative: "[I]f it prevails on appeal, [Thoma...

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