IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

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N

o

 02-20137

Summary Calendar

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IN THE MATTER OF:

EQUALNET COMMUNICATIONS CORPORATION;

ERUDITE COMMUNICATIONS, INC.,

FORMERLY KNOWN AS EQUALNET CORPORATION;

RIDENT COMMUNICATIONS, INC.,

FORMERLY KNOWN AS USC TELECOM, INC.,

Debtors.

RFC CAPITAL CORPORATION,

Appellee,

VERSUS

EQUALNET COMMUNICATIONS CORPORATION;

ERUDITE COMMUNICATIONS, INC.,

FORMERLY KNOWN AS EQUALNET CORPORATION;

RIDENT COMMUNICATIONS, INC.,

FORMERLY KNOWN AS USC TELECOM, INC.,

Appellants.
2

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Appeal from the United States District Court

for the Southern District of Texas

N

o

 H-01-2024

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September 30, 2002

Before HIGGINBOTHAM, SMITH, and 

CLEMENT, Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

Equalnet Communications, Erudite Communications, and Rident Communications

(“debtors”) appeal an order of the district

court reversing three orders of the bankruptcy

court that had required RFC Capital Corporation (“RFC”) to extend debtor-in-possession

financing without any security or administrative priority. Agreeing with the district court

that RFC never agreed to such an obligation,

we affirm.

I.

RFC served as a primary lender to the debtors before and after they filed a bankruptcy petition in August 2000. When the debtors filed

the petition, RFC had a secured claim against

them for $7,655,173.1 After the petition was

filed, the debtors could not obtain unsecured

credit for their ordinary operating expenses

under 11 U.S.C. § 364(a). In four debtor-inpossession financing orders (“DIP orders”),

the bankruptcy court therefore authorized

additional credit from RFC to the debtors and

gave RFC administrative priority under 11

U.S.C. § 364(c)(1).

In March 2001, the bankruptcy court entered a sale order authorizing the debtors to

sell their assetsto CCC Globalcom Corp., Inc.

(“CCCG”), for $500,000 in cash and the assumption ofRFC’s pre-petition secured claim.

The sale order stated that RFC’s claims over

$7.5 million would be treated as unsecured

claims. In three subsequent funding orders,

the bankruptcy court ordered RFC to extend

post-petition credit to the debtors and, more

importantly, held that the sale order overrode

the DIP orders and stripped these post-petition

loans of their administrative priority status,

thereby making them general unsecured loans.

RFC appealed to the district court, which

reversed the funding orders. In a short opinion, the district court concluded that the bankruptcy court had misinterpreted the plain language of the sale order. The district court held

that the section of the sale order limiting

RFC’s secured claims to $7.5 million referred

only to RFC’s pre-petition loans, not its post-

* Pursuant to 5TH CIR. R. 47.5, the court has

determined that this opinion should not be published and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.

1 The debtors’ unsecured creditors committees

disputed the amount of this claim and filed an adversary proceeding in the bankruptcy court against

RFC.
3

petition loans. The district court therefore reinstated the administrative priority for these

post-petition loans. The debtors appeal this

ruling.2

II.

The parties agree on the basic standard of

review for a bankruptcy appeal. “The court

reviews the findings of fact by the bankruptcy

court under the clearly erroneousstandard and

decidesissues oflaw de novo.” Haber Oil Co.

v. Swinehart (In re Haber Oil Co.), 12 F.3d

426, 434 (5th Cir. 1994).

The parties disagree, though, on whether

and to what degree we should defer to the

bankruptcy court’s interpretation of its own

orders. RFC contends that we should review

the bankruptcy court’s interpretation wholly

de novo without any deference. The debtors

think we should defer to the bankruptcy

court’s interpretation of its orders.

We stated the “proper reconciliation of

these two positions” inNewNat’l Gypsum Co.

v. Nat’l Gypsum Co. Settlement Trust (In re

Nat’l Gypsum Co.), 219 F.3d 478, 484 (5th

Cir. 2000). “[W]e should review de novo the

purely legal issues . . . but should defer to the

bankruptcy court’s reasonable resolution of

any ambiguities in the [orders].” Id. At the

same time, we explained that textual interpretation of a court order is ultimately a legal

question, so the order “must be truly ambiguous . . . before we will defer.” Id.

As we explain below, the sale order is not

ambiguous, and “we will not defer to the bankruptcy court’s interpretation of this unambiguoustext.” Id. at 489. We therefore review the sale order and related documents

de novo.

III.

The sale order is a consent order that we

reviewaccording to ordinaryprinciples ofcontractual interpretation. United States v. ITT

Cont’l Baking Co., 420 U.S. 223, 236 (1975);

Eaton v. Courtaulds of N. Am., Inc., 578 F.2d

87, 90 (5th Cir. 1978). “Even in bankruptcy

proceedings, the courts of appeals look to

state law to decide contractual issues.” River

Prod. Co. v. Webb (In re Topco, Inc.), 894

F.2d 727, 738 (5th Cir. 1990).

Texas contract law providesthe guiding interpretive principles for this case. Most importantly, “[i]n the interpretation of contracts

the primary concern of the courts is to ascertain and to give effect to the intentions of the

parties as expressed in the instrument.” R&P

Enters. v. LaGuarta, Gavrel &Kirk, Inc., 596

S.W.2d 517, 518 (Tex. 1980). Moreover,

“[t]his court is bound to read all parts of the

contract together to ascertain the agreement of

the parties. 

The contract must be considered as a

whole.” Forbau v. Aetna Life Ins. Co., 876

S.W.2d 132, 133 (Tex. 1994). If the contract

2 The debtors contend that the district court

lacked jurisdiction over RFC’s appeal because

RFC did not file the appeal within ten days of the

entry of judgment. See FED. R. BANKR. P. 8002.

Although RFC filed a notice of appeal within ten

days of each of the three funding orders, the debtors argue that RFC really appeals the sale order,

not the funding orders. 

This argument is unpersuasive. RFC had no

reason to think that it would be required to lend to

the debtors on an unsecured basis without administrative priority until the bankruptcy court entered

the funding orders. RFC therefore timely appealed,

and the district court properly exercised jurisdiction over that appeal.
4

incorporates other documents by reference, we

must examine those documents, as well, to ascertain the parties’intent. Owen v. Hendricks,

433 S.W.2d 164, 166 (Tex. 1968). Finally, a

contract contains an ambiguity only when its

terms are objectively ambiguous, not simply

because the parties offer differing interpretations. Forbau, 876 S.W.2d at 134.

With these principles in mind, we conclude

that the sale order is unambiguous and does

not strip RFC’s post-petition loans of administrative priority status. The bankruptcy court

relied on paragraph 25 of the sale order to

conclude that the sale order overrode the DIP

orders and reduced RFC’s post-petition loans

to general unsecured status. Paragraph 25

states in pertinent part that “[t]o the extent

that RFC asserts that its claim against the

Debtorsis in excess of $7.5 million, RFC shall

be permitted to assert a deficiency claim

against the Debtors equal to the amount of its

alleged claim less $7.5 million (‘the RFC

Deficiency Claim’). The RFC Deficiency

Claim, if allowed, shall only be allowed as a

general unsecured claim.” 

Paragraph 25 admittedly seems to limit

RFC to a secured claimof $7.5 million, but the

bankruptcy court failed to interpret paragraph

25 in the context of the contract as a whole.

In this context, paragraph 25 limits onlyRFC’s

pre-petition secured claim, not its post-petition

administrative priority claim.

Uncertainty over the amount of RFC’s prepetition claim threatened the sale of the debtors’ assetsto CCCG. The unsecured creditors

committees had filed an adversary proceeding

to challenge the amount of RFC’s pre-petition

secured claim. The parties set aside the dispute for the sake of consummating the sale.

Thus, paragraph 33 of the sale order’s finding

of facts states that “[t]he claim of RFC is

fixed, for the purposes of this Sale Order, at

$7,500,000” (emphasis added), without prejudicing in anyway the adversary proceeding.3

Likewise, section 2.2(c) of the Asset Purchase

Agreement (“APA”), which the sale order

incorporates by reference, limits RFC’s claim

to the lesser of $7.5 million or the amount

determined in the adversary proceeding.

Section 2.2(c) initially required the debtors to

request a finalorder fromthe bankruptcycourt

approving a compromise amount between the

unsecured creditors committees and RFC.

Yet, once it appeared that the committees and

RFC would not settle the adversary proceeding, the debtors and CCCG amended section

2.2(c) expressly to disclaim any prejudice to

the adversary proceeding.

These contractual provisions demonstrate

that paragraph 25 refers only to RFC’s prepetition secured claim, not its post-petition administrative priority claim. Paragraph 25

merely carried out the deal-making compromise between the debtors and CCCG byallowing CCCG to purchase debtors’ assets without

the risk of an unexpectedly large claim by

RFC.

A supplemental order concerning the proceduresfor the asset sale entered in April 2001

also evidences that paragraph 25 did not strip

RFC’s post-petition loans of administrative

priority status. The order stated that CCCG’s

assumption ofRFC’s pre-petition loans “in the

approximate amount of $7.5 million . . . shall

3 The sale order contains two sets of sequentially numbered paragraphs. The first set expresses the bankruptcy court’s findings of facts, the second set its order. We cite the latter by paragraph

number alone and the former by paragraph number

and the phrase “findings of fact.”
5

be treated as consideration to the Debtors’

estatesin the amount of $7.5 million solely for

the purposes of the sale of the Debtors’

assets” (emphasis added). The order also

stated that “RFC shall complywith the various

debtor-in-possession orders entered in this

case.” Although not a part of the sale order,

this language from the supplemental order

demonstrates that the parties and the bankruptcy court believed that the DIP orders, i.e.,

RFC’s obligation to loan to the debtors and its

right to administrative priority, remained in

effect after the sale order.

The debtors also argue that paragraph 27 of

the sale order amends or vacates the DIP orders. Paragraph 27 states, in pertinent part,

that “all orders of this court . . . shall be

deemed amended and/or vacated to the extent

required to permit consummation of the Acquisition. To the extent such other . . . orders

are inconsistent with this Order or the [APA],

this Order and the [APA] shall in such cases

govern.” As we have explained, however, paragraph 25 unambiguously covers only RFC’s

pre-petition claims, not its post-petition

administrative priority claims. Thus, the sale

order and the DIP orders do not conflict, and

paragraph 27 does not amend or vacate the

DIP orders.

Finally, we note the improbable nature of

the debtors’ theory. A claim with administrative priority under § 364(c)(1) is one of the

most valuable claims under the Bankruptcy

Code; it takes priority over almost every other

kind of claim, including administrative claims

under § 503(b) and § 507(b). A general unsecured claim, on the other hand, is one of the

most worthless claims under the Code; unsecured creditors often receive mere pennies

on the dollar, if that. 

RFC surely would not have agreed to surrender its administrative priority claim for a

general unsecured claim without some very

good reason, yet the debtors have singularly

failed to adduce any such reason. This failure

strongly suggests that RFC did not, in fact,

eversurrenderits administrative priorityclaim,

but rather lost the claim because of the

mistaken interpretation of the bankruptcy

court. As the district court explained, however, “[t]he bankruptcycourt cannot transform

the loans from an administrative expense into

an unsecured interest without the lender’s consent.” The district court properly held that the

loans made byRFC under the DIP orders have

administrative priority.

The judgment of the district court, reversing the orders of the bankruptcy court, is

AFFIRMED.