Louisiana Pellets, Inc. and German Pellets Louisiana, LLC filed for Chapter 11 bankruptcy in 2016. The bankruptcy court confirmed the debtors’ plan in 2017, which established a liquidating trust for the debtors’ remaining assets and causes of actions. Appellee Craig Jalbert was the liquidating trustee. In 2019, certain bondholders of Louisiana Pellets assigned certain claims to Jalbert stemming from misstatements made by appellant Raymond James & Associates, Inc. in the bond offering memoranda. In response, Jalbert filed claims against Raymond James for violation of state security laws in Louisiana state court. Raymond James asserted affirmative defenses based on the indemnification provisions of a pre-bankruptcy indemnity agreement with the debtors. Jalbert, in turn, argued that Raymond James was prohibited from asserting the affirmative defenses on two different grounds: first, the liquidating trust did not take on the debtors’ liabilities and, thus, was the wrong party to raise indemnity obligations against, and second, the bankruptcy court’s 2017 confirmation order permanently enjoined Raymond James from asserting any setoff, right of subrogation, surcharge, or recoupment. The bankruptcy court agreed with Jalbert and denied the right to invoke affirmative defenses based on the indemnity obligation and enforced the confirmation order against Raymond James. Raymond James appealed, and the district court affirmed. Raymond James appealed again, and on January 30, 2024, the Fifth Circuit panel affirmed the bankruptcy court’s decision.

In reaching its decision, the Fifth Circuit panel first asked whether the confirmation plan applies to Raymond James. Raymond James argued that its claims were exempt from discharge pursuant to 11 U.S.C. § 523(a)(3) because the debtors failed to notify Raymond James of its position as a creditor in the bankruptcy proceedings. The panel acknowledged that the debtors failed to list Raymond James as a creditor but determined that Section 523(a)(3) does not apply because Raymond James had actual knowledge of the bankruptcy proceedings. The panel then asked whether the plan discharges the defenses Raymond James is attempting to assert against Jalbert. It concluded that pre-bankruptcy indemnity obligations are the type of claims expressly prohibited by the confirmation plan and were therefore discharged by the plan. The panel disposed of Raymond James’ remaining arguments by concluding that the liquidating trust is not the appropriate party to raise affirmative defenses against in the first place. As the panel explained, Raymond James’ defenses existed through its contract with the debtors, and pursuant to precedent and the express language of the trust agreement, the debtors are distinct from the trust.

The case is Raymond James & Associates Inc. v. Jalbert, No. 23-30040 (5th Cir. Jan. 30, 2024). Raymond James represented are represented by Bass Berry & Sims, P.L.C., Stanley, Reuter, Ross, Thornton & Alford, L.L.C. and Gold, Weems, Bruser, Sues & Rundell. Jalbert is represented by Fishman Haygood, L.L.P. and Katie Lasky Law, L.L.C. The opinion is available here.