Court Opinion

ID: 19664
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:26:41+00
Date Added: 2024-06-11T15:03:53.019521
License: Public Domain

UNITED STATES COURT OF APPEALS
                           FOR THE FIFTH CIRCUIT

                                     No. 99-10587
                                   Summary Calendar

In the Matter of: FIRST CITY BANCORPORATION OF TEXAS, INC.,
                                                                       Debtor.
STEPHEN WHELAN; JERRY KRIM; HAROLD L. HARRIS,
Individually and as Trustee of Mazel, Inc. Profit Sharing Plan
and the Group of Securities Litigation,
                                                                               Appellants,
                                          versus
HEFFLER, RADETICH & SAITTA, LLP; CARRINGTON,
COLEMAN, SLOMAN & BLUMENTHAL, LLP; C. IVAN
WILSON; ROBERT W. BROWN,
                                                                                 Appellees.

                      Appeal from the United States District Court
                          for the Northern District of Texas
                                  (3:98-CV-2332-G)

                                   December 23, 1999
Before POLITZ, JONES, and WIENER, Circuit Judges.
POLITZ, Circuit Judge:*

       Stephen Whelan, Jerry Krim, and Harold Harris, individually and as Trustee
of Mazel, Inc. Profit Sharing Plan, and the Group of Securities Litigation Claimants

appeal the district court’s order affirming the dismissal of their amended complaint

   *
    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 R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
by the bankruptcy court for failure to state a claim. For the reasons assigned, we
affirm.

                                BACKGROUND

      In May 1995, the bankruptcy court confirmed First City Bancorporation’s
Joint Plan of Reorganization. The Plan provided for a settlement between First

City and the Class 8 Claimants, former First City shareholders with Bankruptcy

Code § 510(b) securities litigation claims. The settlement with First City was

negotiated by Harvey Greenfield on behalf of the Class 8 Claimants as a group,
although the identities and numbers of the claimants were not fully known at that
time. To share in the settlement, the Class 8 Claimants were required to file proofs
of claim with the bankruptcy court by December 13, 1994. The firm of Heffler,

Radetich, and Saitta, L.L.P. was hired by First City and First City’s bankruptcy
counsel, Carrington, Coleman, Sloman, & Blumenthal, L.L.P., to administer the

settlement fund and notify all potential Class 8 Claimants of the December bar
date. Several complications arose regarding the notification process, occasioning
some of the Class 8 Claimants not to receive notice of the bar date or of the

subsequent shareholder vote regarding the three competing plans of reorganization.

Steps were taken to correct the deficiencies. Because of the notification problems,
the bankruptcy court extended the original deadline for filing proofs of claim to

grant all Class 8 Claimants an opportunity to share in the settlement. Because the

deadline for the shareholder vote expired, however, some of the Class 8 Claimants

who received late notice were unable to vote on the Plan.

                                         2
       The appellants filed suit against Heffler, Carrington, Ivan Wilson,1 and
Robert W. Brown,2 alleging due process violations, common law fraud, breach of

fiduciary duty, negligence, and gross negligence arising from the notification

problems. Specifically, appellants complained that the appellees failed to provide
some of them with timely notice, and that such failure deprived them of the

opportunity to vote on the Plan. They also maintained that the failure to provide

proper notice resulted in a dilution of their distributions under the settlement

because other claimants were allowed to file claims after the original bar date.
       The bankruptcy court granted the appellees’ motion to dismiss on two
grounds. The bankruptcy court first concluded that the appellants suffered no
cognizable injury, thus negating an essential element of each claim. Because they

lacked cognizable injury, the court also determined that appellants had no standing
to pursue claims on behalf of other unidentified persons who may have a claim

against appellees. In addition, the bankruptcy court concluded that the appellants
failed to state a claim upon which relief could be granted for each cause of action
asserted.

       The appellants appealed the bankruptcy court’s dismissal to the district court,

addressing the injury and standing issues. Their brief did not, however, discuss the
bankruptcy court’s conclusion that their allegations were insufficient to state a

claim, and the district court assumed that the appellants abandoned any objection

   1
    Chief Executive Officer and Chairman of the Board of Directors for First City.
   2
    President and member of the Board of Directors for First City.
                                           3
to that ground for dismissal. Determining that the substantive flaws in the
appellants’ claims provided an independent and adequate basis for dismissal under

Rule 12(b)(6),3 the district court affirmed the bankruptcy court’s dismissal without

reaching a conclusion on the injury and standing issues. This appeal followed.
                                        ANALYSIS

       We review a Rule 12(b)(6) dismissal de novo, liberally construing the

complaint in favor of the plaintiffs-appellants and deeming all facts pleaded to be

true.4 The dismissal will not be affirmed unless it appears beyond doubt that the
appellants can prove no set of facts in support of their allegations which would
entitle them to relief.5
       The appellees urge us to dismiss this appeal because the appellants failed to

designate a record on appeal and failed to file a statement of issues as required by
Rule 6(b)(2)(B)(i).6 In failing to comply with these procedural requirements, the

appellants relied upon erroneous advice from the clerk’s office. Although the
appellate rules are explicit about what is required in such an appeal, we conclude
that the appellants’ reliance upon the clerk’s office is a mitigating factor effectively

neutering the basis for dismissal of the appeal. We decline to dismiss this appeal

based upon the appellants’ procedural misstep. We therefore address the merits of

   3
    FED. R. CIV. PROC. 12(b)(6).

   4
    See Lowrey v. Texas A & M University System, 117 F.3d 242 (5th Cir. 1997).
   5
    Conley v. Gibson, 355 U.S. 41 (1957).
   6
    FED. R. APP. PROC. 6(b)(2)(B)(i).
                                            4
their appeal.
      We first conclude and hold that the bankruptcy court was correct in finding

that the appellants lacked cognizable injury. Their injury cannot be based upon

dilution of the settlement fund because the notice problems had no effect on the
total settlement amount, a sum which was negotiated at a time when the identity

and number of Class 8 Claimants was uncertain. The fact that more claimants

existed than anticipated at the time of settlement cannot constitute injury, absent

a misrepresentation or omission by the appellees regarding the number of
claimants. No such allegation of misrepresentation or omission was made by the
appellants. On appeal, the appellants also point to the dilution of the settlement
fund for administrative costs incurred to correct the notification problems,

complaining that their distributions were reduced by such costs. This contention
was not raised in their amended complaint, nor is there any indication that it was

raised in the bankruptcy court before the court granted the appellants’ motion to
dismiss. We therefore do not consider this proposition on appeal. Likewise, we
do not consider the assertion that litigation costs associated with the notification

problems constitute a basis for injury because it, too, is raised for the first time on

appeal. We do not find persuasive and do not accept the proposition that costs to
litigate the underlying lawsuit–initiated by the appellants–can comprise legally

cognizable injury. Further, the fact that one of the appellants was not able to vote

on the Plan due to late notice does not constitute injury because the appellants have

not alleged that the claimants who were denied the opportunity to vote were

                                          5
sufficient in number to affect the results of the confirmation process. Because the
appellants received notice and have not suffered any cognizable injury, they cannot

now assert claims on behalf of other Class 8 Claimants who have suffered actual

injury because they were not notified of the bankruptcy. The bankruptcy court
properly held that the appellants lacked injury and standing to assert the claims set

forth in their complaint.

      We next conclude that the appellants’ complaint was properly dismissed

because it failed to state claims upon which relief can be granted. As previously
noted, the appellants have no legally cognizable injury, which is an essential
element of claims for relief based on each of their allegations. Further, the
appellants’ due process claim fails because the appellees are not state actors. The

fraud claim fails because the complaint does not allege a specific misrepresentation
or omission, nor does it sufficiently allege reliance or causation. Appellants also

fail to state a claim for breach of fiduciary duty because they received notice and
incurred no injury; thus, there can be no breach of the appellees’ duty to provide
the appellants with adequate notice or to deal fairly with them. Finally, the

negligence and gross negligence claims fail because the complaint does not

sufficiently allege any facts that could support a finding that any damages were
proximately caused by the appellees’ alleged negligence. In sum, it appears

beyond doubt that the appellants can prove no set of facts in support of their

allegations which will entitle them to relief. Their amended complaint was

dismissed properly under Rule 12(b)(6).

                                         6
The judgment appealed is AFFIRMED.

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