* 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this opinion should not be published and is not precedent except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.

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________

No. 97-50932

__________________

In The Matter Of: INTELOGIC TRACE, INC.

Debtor,

ROBERT SACHS; NIBCO NEVADA, INC.; KAREN SACHS; CLAUDIA SACHS;

HOWARD YONET; JOSEPH CORDA; TOMA CORDA; ELIZABETH J. SAMPSON

and ASSOCIATES; YONY PROPERTIES, INC.; HENRI YONET; PAUL

YONET; LARRY WAYNE; ANNE WAYNE; NOAM SCHWARTZ; MARION

BLACKBURN; LOIS ESFORMES; MARY ANN MCCAIN; STAN COHEN; CAROL

SEIDEN; SACHS LIVING TRUST; HERBERT H. EVELOFF, M.D.; PETER

KALTMAN; NEO CONSTRUCTION, INC.; HERBERT H. EVELOFF, M.D.,

IRA; FAYE EVELOFF; GARY AUSTIN; KAY F. GERHARD; L.F.I.

RETIREMENT TRUST; GARY POLLACK,

Appellants,

versus

INTELOGIC TRACE, INC.; ASHER B. EDELMAN; CLARK R. MANDIGO;

LEON BOTSTEIN; HENRY G. CISNEROS; DANIEL R. KAIL; BURTON

LEHMAN; MICHAEL D. SCHULTZ; DWIGHT D. SUTHERLAND,

Appellees.

______________________________________________

Appeal from the United States District Court

for the Western District of Texas

(SA-95-CV-1007)

______________________________________________

February 22, 1999

Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges.

PER CURIAM:*
 

1The complaint also asserted two other claims under state and

federal securities laws. Because one of those claims was

voluntarily dismissed by the Bondholders and the bankruptcy court’s

dismissal of the other was not appealed, neither are considered

here.

2

The appellants are thirty individual and institutional

holders of subordinated debentures (“Bondholders”) who filed a

complaint against the bond issuer, Intelogic Trace, Inc.

(“Intelogic”), and eight former members of Intelogic’s board of

directors (“Directors”). The Bondholders filed the complaint as

an adversary proceeding under Intelogic’s then pending Chapter 11

bankruptcy case. They alleged that Intelogic had violated

commitments made to the Bondholders in the bond prospectus

(“Prospectus”) by squandering bond proceeds on unwise

investments. On motion by Intelogic and the Directors, the

bankruptcy court dismissed the Bondholders’ complaint and denied

the Bondholders’ motion for leave to file an amended complaint. 

The district court affirmed the bankruptcy court’s judgment and

the Bondholders now appeal from that decision.

We affirm the district court’s decision insofar as it upheld

the dismissal of the Bondholders’ complaint. That complaint

alleged that Intelogic’s failure to abide by commitments made to

the Bondholders in the Prospectus entitled the Bondholders to

relief for: (1) breach of contract; (2) intentional

misrepresentation; (3) negligence; and (4)securities fraud.1

Because the Prospectus was not a contract between the Bondholders

and Intelogic, because the Prospectus did not contain any

restrictive representations regarding the manner in which the
3

proceeds would be used, and because the Prospectus did not

establish any statutory or common law duty between Intelogic and

the Bondholders, all of those claims were properly dismissed

under Federal Rule of Civil Procedure 12(b)(6) for failing to

state claims upon which relief could be granted. Moreover, they

were each barred by the applicable statute of limitations. 

We reverse the district court’s decision insofar as it

upheld the denial of the Bondholders’ motion for leave to file an

amended complaint. Federal Rule of Civil Procedure 15(a)

provides that leave to amend a pleading “shall be freely given

when justice so requires.” Although we review a trial court’s

decision to deny leave only for an abuse of discretion, “[i]ts

discretion . . . is not broad enough to permit denial if the

court lacks a substantial reason to do so.” Southmark Corp. v.

Schulte Roth & Zabel (In re Southmark Corp.), 88 F.3d 311, 314

(5th Cir. 1996). It is within the trial court’s discretion to

deny leave when any amendment would be futile. See FDIC v.

Conner, 20 F.3d 1376, 1385 (5th Cir. 1994).

The Bondholders argued before the bankruptcy court that, if

their claims under the Prospectus were not viable, the court

should permit them to amend their complaint to include claims

under the indenture agreement (“Indenture”). Both the bankruptcy

court and the district court rejected the Bondholders’ argument,

finding that any amendment to include claims under the Indenture

would be futile. The district court based its conclusion on the

Indenture’s “no action” exhaustion provision which required that
4

bondholders allow the indenture trustee an opportunity to act

upon any bondholder complaints before the bondholders would be

permitted to file suit. Because the Bondholders had not

presented their complaints to the indenture trustee, the district

court reasoned that any claims based on the Indenture would be

barred by that requirement, and that the bankruptcy court was

thus correct in denying leave. We disagree.

Although the Indenture’s “no action” provision bars many of

the Bondholders’ potential claims, it does not bar all of them. 

Specifically, under section 7.07 of the Indenture, claims for

nonpayment of interest are exempted from the “no action”

exhaustion requirement. Furthermore, unlike the Bondholders

other potential claims, a claim for nonpayment of interest does

not appear to be barred by the statute of limitations as the

Bondholders filed their suit in October, 1994, less than three

months after Intelogic first failed to make their interest

payments under the debentures. Therefore, it would not have been

futile for the Bondholders to amend their complaint to include a

claim for nonpayment of interest under the Indenture. 

The district court declined to consider this argument,

finding that the Bondholders had not properly raised the issue

before the bankruptcy court. In the brief in which they

requested leave from the bankruptcy court, however, the

Bondholders raised nonpayment of interest as a basis for relief

at several points, including the section discussing breach of

contract:
5

The indenture agreement provides . . . that Intelogic

will pay principal and interest on the securities in

the manner provided by the securities themselves. . . . 

Defendants’ actions have caused this provision to be

breached. Interest has not been paid according to

those terms. Defendants’ actions have prevented

plaintiffs from receiving the fruits of their contract.

We find that the Bondholders did adequately place the issue of

nonpayment of interest before the bankruptcy court. The district

court thus erred in finding no abuse of discretion in the denial

of the Bondholders’ motion for leave to amend their complaint to

include a claim based on the nonpayment of interest. 

 Such a claim, however, would be futile if brought against

the Directors. The Indenture incorporates language from the

debenture that limits the liability of past or present directors

for any obligations of Intelogic under the Indenture or

debenture. The Bondholders have failed to provide any theory

explaining how the Directors could nonetheless be liable for

Intelogic’s nonpayment of its interest obligations under the

debenture. We therefore limit our reversal of the district

court’s decision such that the Bondholders on remand are only

permitted to amend their complaint to include a claim against

Intelogic, and not the Directors.

For the foregoing reasons, we AFFIRM in part, REVERSE in

part, and REMAND to the bankruptcy court for further proceedings

consistent with this decision.