927 F.3d 862
5th Cir.2019Background
- Linn Energy and affiliates filed Chapter 11 in May 2016; bankruptcy set a claims bar date for governmental units.
- Oklahoma State Treasurer (Treasurer) filed three proofs of claim in August 2016 for contingent/unknown amounts, citing Oklahoma unclaimed property law.
- Linn disclosed unclaimed Oklahoma and Texas royalties to the respective states; Texas filed an adversary complaint and objected to Linn’s plan; Treasurer did not object to the Plan or file an adversary complaint pre-confirmation.
- Linn’s confirmed Plan treated royalty and working-interest payment rights as general unsecured claims, included a vesting clause transferring estate property to Linn, and contained a discharge and injunction barring post-confirmation claims.
- After confirmation became final, the Treasurer sued in an adversary proceeding seeking turnover of Oklahoma unclaimed royalties; bankruptcy court dismissed the complaint as a collateral attack barred by res judicata; the district court reversed; Fifth Circuit reinstated the bankruptcy court dismissal.
Issues
| Issue | Treasurer’s Argument | Linn’s Argument | Held |
|---|---|---|---|
| Whether Oklahoma unclaimed royalties were excluded from the bankruptcy estate so Treasurer could pursue turnover post-confirmation | Unclaimed property never belonged to Linn and thus was not part of the estate; turnover claim is outside Plan | Unclaimed royalties were property of the estate and treated by the Plan; Treasurer failed to object or appeal | Held for Linn: res judicata bars the Treasurer’s collateral attack because it had opportunity to challenge treatment pre-confirmation |
| Whether the Treasurer’s post-confirmation adversary complaint is barred by res judicata / collateral attack doctrine | Pearlman preserves rights of non-debtors to prevent trustee distribution of others’ property | Confirmation order is a final judgment; Travelers precludes collateral attacks by parties who had chance to litigate | Held for Linn: Travelers prevents collateral attack on a final confirmation order |
| Whether the bankruptcy court had jurisdiction to adjudicate Treasurer’s claim post-confirmation | Treasurer: claim is outside the estate so bankruptcy court lacked jurisdiction | Linn: confirmation and Plan provisions brought the issue within the court’s final judgment effect | Held for Linn: court need not relitigate jurisdiction once order is final; res judicata controls |
| Whether state unclaimed-property law is preempted by Bankruptcy Code in this context | Treasurer: state law governs and gives it rights to the funds | Linn: Bankruptcy Code/discharge and plan treatment govern; preemption argument available | Held: court did not reach preemption merits because res judicata resolved the case in Linn’s favor |
Key Cases Cited
- Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (2009) (final bankruptcy orders become res judicata and bar collateral attacks even if bankruptcy court’s jurisdiction was debatable)
- Pearlman v. Reliance Insurance Co., 371 U.S. 132 (1962) (trustees may not distribute property belonging to others under the former Bankruptcy Act)
- In re Davis Offshore, L.P., 644 F.3d 259 (5th Cir. 2011) (applying Travelers to bar collateral attacks on plan confirmation)