NEW ORLEANS – The U.S. Court of Appeals for the Fifth Circuit upheld a lower court's ruling in a case concerning the ownership of a 4.5-acre plot of riverside land.
Originally, CHS Inc. and South Louisiana Ethanol LLC each owned a 50 percent interest in the land, but when South Louisiana Ethanol (SEL) filed for bankruptcy, it sold to a third party an option to purchase all of its right, title and interest in the company that owned the shared land.
The third party assigned its rights under the option contract to Plaquemines Holdings LLC and CHS responded by filing a suit against it.
The suit contended that SEL’s contract with Plaquemines constitutes the assignment of a litigious right, entitling CHS to redeem the litigious right by reimbursing Plaquemines for the cost of the option contract plus interest.
Plaquemines argued that there was no assignment of a litigious right because CHS is not a “debtor” within the meaning of the law. Plaquemines claimed that it purchased an option contract that granted it the option to buy the assets SLE receives once the dissolution of land was complete and that CHS does not have any “obligation” that it can “extinguish.”
While SLE indisputably owns a 50 percent interest in the company, the exact contours of that interest were not settled at the time SLE sold the option contract to Plaquemines, according to court documents.
The district court decided that SLE lacked the ability to produce ethanol, so it could not continue to run its business and pay its creditors, making it highly improbable that a reorganization plan could have been confected, let alone approved. However, CHS argued that SLE was “free to choose” the manner of its reorganization, but through its understanding of SLE’s business and the statutory structure under which it operated once in bankruptcy reveals that it was not free to reorganize. CHS argued that SLE was effectively compelled to liquidate all of its assets.
The appeals court affirmed the order of the district court, thereby dismissing CHS’s complaint.
Circuit Judge Edward C. Prado gave a dissenting opinion, citing that the sale falls within the parameters of the judicial-sale exception.
The case was heard by Circuit Judges Carl E. Stewart, Carolyn Dineen King and Prado with King authoring the majority opinion.
Case no. 13-30029.