Court Opinion

ID: 9353381
Source: CourtListenerOpinion
Date Created: 2023-01-11 19:01:02.282456+00
Date Added: 2024-06-11T17:07:42.337675
License: Public Domain

Case: 22-10189     Document: 00516606273         Page: 1    Date Filed: 01/11/2023

           United States Court of Appeals
                for the Fifth Circuit
                                                                     United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                      January 11, 2023
                                  No. 22-10189                         Lyle W. Cayce
                                                                            Clerk

   In the Matter of Highland Capital Management, L.P.

                                                                         Debtor,

   Highland Capital Management Fund Advisors, L.P.;
   NexPoint Advisors, L.P.; The Dugaboy Investment
   Trust,

                                                                    Appellants,

                                      versus

   Highland Capital Management, L.P.,

                                                                       Appellee.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                           USDC No. 3:21-CV-1895

   Before King, Stewart, and Haynes, Circuit Judges.
   King, Circuit Judge:
          Following the bankruptcy court’s confirmation of its reorganization
   plan, Highland Capital Management, L.P. filed a motion with the bankruptcy
   court seeking entry of an order authorizing the creation of an indemnity sub-
   trust. Over several objections, the bankruptcy court entered an order
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                                    No. 22-10189

   approving the motion. Several objectors appealed, arguing that the order
   impermissibly modified the plan. The district court affirmed the bankruptcy
   court’s order and dismissed several of the appellants from the appeal. The
   appellants then sought review in this court. We DISMISS IN PART the
   appeal and AFFIRM the district court’s judgment.
                                         I.
                                  A. The Parties
          Highland Capital Management, L.P. (“Highland Capital”) was co-
   founded in 1993 by James Dondero and Mark Okada. It was a multibillion-
   dollar global investment advisor that operated through a complex set of
   entities doing business under the Highland umbrella. Prior to plan
   confirmation, Appellant Dugaboy Investment Trust (“Dugaboy”), a trust
   created to manage some of Dondero’s assets, possessed a fractional
   (0.1866%) limited partnership interest in Highland Capital; this interest was
   canceled under the confirmed plan.
          Dondero also manages the other appellants, which were two of
   Highland Capital’s clients—Highland Capital Management Fund Advisors,
   L.P. (“HCMFA”) and NexPoint Advisors, L.P. (“NexPoint”). Like
   Highland Capital, HCMFA and NexPoint serviced and advised large,
   publicly traded investment funds.
                          B. The Reorganization Plan
          In October 2019, Highland Capital filed for Chapter 11 bankruptcy in
   the District of Delaware due to significant business litigation claims that it
   faced. In December 2019, the bankruptcy court transferred the case to the
   Northern District of Texas.
          The reorganization of Highland Capital was negotiated by a four-
   member Unsecured Creditors’ Committee (the “Committee”). Early in this

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   process, the Committee sought to appoint a Chapter 11 trustee due to its
   concerns over and distrust of Dondero. After many weeks of negotiation, the
   Committee and Dondero reached a corporate governance settlement
   agreement whereby Dondero relinquished control of Highland Capital and
   resigned his positions as an officer and director. As part of the settlement,
   three independent directors were chosen to carry Highland Capital through
   reorganization. The bankruptcy court approved the settlement in January
   2020. It later appointed James Seery, Jr., one of the independent directors,
   as Highland Capital’s Chief Executive Officer, among other titles.
          In August 2020, the independent directors, with the support of the
   Committee, filed the Fifth Amended Plan of Reorganization of Highland
   Capital Management, L.P. (the “Plan”). This court previously sketched the
   basic structure of the Plan:
          The Plan works like this: It dissolves the Committee, and
          creates four entities—the Claimant Trust, the Reorganized
          Debtor, HCMLP GP LLC, 1 and the Litigation Sub-Trust.
          Administered by its trustee Seery, the Claimant Trust
          “wind[s]-down”          Highland       Capital’s    estate   over
          approximately three years by liquidating its assets and issuing
          distributions to class-8 and -9 claimants as trust beneficiaries.
          Highland Capital vests its ongoing servicing agreements with
          the Reorganized Debtor, which “among other things”
          continues to manage the CLOs [collateral loan obligations] and
          other investment portfolios. The Reorganized Debtor’s only
          general partner is HCMLP GP LLC. And the Litigation Sub-

          1
           The Plan calls this entity “New GP LLC,” but it was later named HCMLP GP
   LLC. For the sake of clarity, we use HCMLP GP LLC.

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          Trust resolves pending claims against Highland Capital under
          the direction of its trustee Marc Kirschner.
          The whole operation is overseen by a Claimant Trust
          Oversight Board (the “Oversight Board”) comprised of four
          creditor representatives and one restructuring advisor. The
          Claimant Trust wholly owns the limited partnership interests
          in the Reorganized Debtor, HCMLP GP LLC, and the
          Litigation Sub-Trust. The Claimant Trust (and its interests)
          will dissolve either at the soonest of three years after the
          effective date (August 2024) or (1) when it is unlikely to obtain
          additional proceeds to justify further action, (2) all claims and
          objections are resolved, (3) all distributions are made, and (4)
          the Reorganized Debtor is dissolved.

   NexPoint Advisors, L.P. v. Highland Cap. Mgmt. L.P. (In re Highland Cap.
   Mgmt., L.P.), 48 F.4th 419, 426–27 (5th Cir. 2022) (footnote omitted).
          The Plan also includes several conditions precedent that may be
   waived in whole or in part by Highland Capital, including a condition that
   Highland Capital shall obtain directors’ and officers’ (“D&O”) insurance
   coverage acceptable to it, the Committee, the Oversight Board, the Claimant
   Trustee, and the Litigation Trustee. The bankruptcy court found that the
   absence of such insurance, which protects the personal assets of directors and
   officers against lawsuits arising from actions taken as part of their duties,
   would present unacceptable risks to parties, like the independent directors,
   because of Dondero’s continued litigiousness.
          In February 2021, the bankruptcy court confirmed the Plan over
   several remaining objections by Dondero and Dondero-owned or -controlled
   entities. The confirmation order roundly criticized Dondero’s behavior
   before and during the bankruptcy proceedings and deduced that Dondero

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   was a serial litigator whose objections to the Plan were not made in good faith.
   Id. at 428. It also approved the Plan’s voting and confirmation procedures
   and its treatment of dissenting classes, and held that the Plan complied with
   the statutory requirements for confirmation. Id. Dondero and a web of
   Highland-related entities moved to directly appeal the confirmation order to
   this court, which the bankruptcy court granted. Id. In September 2022, we
   affirmed the Plan in all respects except one, concluding that the Plan
   exculpated certain non-debtors beyond the bankruptcy court’s authority. Id.
   at 429.
                        C. The Indemnity Sub-Trust Motion
             While that appeal was ongoing, disputes surrounding the Plan’s
   implementation continued before the bankruptcy court. According to Seery,
   the appeal of the confirmation order made it more difficult for Highland
   Capital to secure D&O insurance because of the additional risk it presented.
   The only D&O insurance that Highland Capital could have secured at that
   time was, in Seery’s view, insufficient because of its coverage gaps and cost.
   Highland Capital and the Committee decided to investigate alternative
   structures, and they determined that the Indemnity Sub-Trust would provide
   the same protections as the D&O insurance considered by the Plan.
             On June 25, 2021, Highland Capital filed a motion with the bankruptcy
   court for entry of an order authorizing the creation of the Indemnity Sub-
   Trust. The Indemnity Sub-Trust was contemplated as a mechanism to
   secure the indemnity obligations of the Claimant Trust, the Litigation Trust,
   and the Reorganized Debtor, serving as a source of claim indemnification
   only in the event that one of these entities did not pay such claims. Under the
   proposal, the Claimant Trust would fund the Indemnity Sub-Trust with $2.5
   million in cash and a funding note in the amount of $22.5 million. The
   Claimant Trust, the Litigation Sub-Trust, and the Reorganized Debtor

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   would be jointly and severally liable for the indebtedness evidenced by the
   note.
           Dugaboy, NexPoint, and HCMFA (collectively, “Appellants”), as
   well as Dondero, objected to the motion, arguing that it was a modification to
   the Plan requiring solicitation, voting, and confirmation under § 1127(b) of
   the Bankruptcy Code. The bankruptcy court disagreed and granted the
   motion in an order authorizing the creation of the Indemnity Sub-Trust on
   July 21, 2021 (the “Order”). It determined that the creation of the Indemnity
   Sub-Trust was within the literal terms of the Plan because the Plan
   “contained a provision addressing that a reserve might be established for
   potential indemnification claims”; the Claimant Trust Agreement, the
   Litigation Trust Agreement, and the Limited Partnership Agreement for the
   Reorganized Debtor contemplated it; and the Indemnity Sub-Trust was not
   “materially astray from the concepts built into the plan.” It concluded that
   the Indemnity Sub-Trust was within the bounds of the Plan and thus not a
   modification. Lastly, it held that the creation of the Indemnity Sub-Trust was
   a valid exercise of business judgment as required by § 363(b)(1) of the
   Bankruptcy Code.
                                   D. The Appeal
           Appellants appealed the Order to the district court, arguing that it was
   an impermissible Plan modification. Highland Capital moved to dismiss the
   appeal as equitably and constitutionally moot.
           The district court dismissed the appeal in part for lack of prudential
   standing and affirmed the Order on January 28, 2022. It held that HCMFA
   and Dugaboy lacked standing and dismissed their appeals, but it reached the
   merits of Appellants’ claim because NexPoint possessed standing. On the
   merits, the district court held that the Order was not a modification because

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   it did not alter the parties’ rights, obligations, and expectations under the
   Plan.
           Appellants timely appealed to this court, contesting the district
   court’s ruling that the Order was not a Plan modification and that HCMFA
   and Dugaboy lacked standing to pursue the appeal. Highland Capital argues
   that the Order did not modify the Plan and that HCMFA and Dugaboy failed
   to preserve for appellate review the district court’s dismissal of their appeal.
                                           II.
           “We review the decision of a district court, sitting in its appellate
   capacity, by applying the same standards of review to the bankruptcy court’s
   finding of fact and conclusions of law as applied by the district court.”
   ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 650 F.3d 593, 600
   (5th Cir. 2011). We review the bankruptcy court’s conclusions of law, as well
   as mixed questions of law and fact, de novo, and the bankruptcy court’s
   findings of fact for clear error. Id. at 601. We review issues of standing de novo.
   Dean v. Seidel (In re Dean), 18 F.4th 842, 844 (5th Cir. 2021).
                                          III.
           Bankruptcy Rule 8009—previously Rule 8006—requires that, in an
   appeal to a district court or bankruptcy appellate panel, “[t]he appellant must
   file with the bankruptcy clerk and serve on the appellee a designation of the
   items to be included in the record on appeal and a statement of the issues to
   be presented.” Fed. R. Bankr. P. 8009(a)(1)(A). A similar rule governs
   appeals from a district court to an appellate court in bankruptcy cases and
   requires that “the appellant must file with the clerk possessing the record
   assembled in accordance with Bankruptcy Rule 8009—and serve on the
   appellee—a statement of the issues to be presented on appeal and a
   designation of the record to be certified and made available to the circuit
   clerk.” Fed. R. App. P. 6(b)(2)(B)(i). We have previously held that, “even

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   if an issue is argued in the bankruptcy court and ruled on by that court, it is
   not preserved for appeal under Bankruptcy Rule 8006 unless the appellant
   includes the issue in its statement of issues on appeal.” Smith ex rel. McCombs
   v. H.D. Smith Wholesale Drug Co. (In re McCombs), 659 F.3d 503, 510 (5th Cir.
   2011) (quoting Zimmermann v. Jenkins (In re GGM, P.C.), 165 F.3d 1026,
   1032 (5th Cir. 1999)). In such cases, “[t]he issue is waived on subsequent
   appeal to the Fifth Circuit, even if the issue was argued before the district
   court.” Id.
          Appellants timely filed a statement of the issues on appeal, which we
   must consider to determine whether they properly preserved for appeal the
   issues and arguments contained in their briefs. Appellants’ statement of the
   issues on appeal presents the following issues:
          1.      Whether the District Court erred by affirming the Order
          Approving Debtor’s Motion for Entry of an Order (I) Authorizing
          the (A) Creation of an Indemnity Subtrust and (B) Entry into an
          Indemnity Trust Agreement and (II) Granting Related Relief (the
          “Order”), entered by the Bankruptcy Court on July 21, 2021
          in the above captioned bankruptcy case.
          2.      Whether the relief requested and granted in the Debtor’s
          Motion for Entry of an Order (I) Authorizing the Debtor to (A)
          Enter into Exit Financing Agreement in Aid of Confirmed Chapter
          11 Plan and (B) Incur and Pay Related Fees and Expenses, and (III)
          Granting Related Relief (the “Motion”) constituted a plan
          modification.
          3.      Whether the relief requested and granted in the Motion
          satisfied the requirements of 11 U.S.C. §§ 1122, 1123, 1125 and
          1127.

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           4.      Whether the Bankruptcy Court otherwise erred by
           granting the Motion.

           By contrast, in their appellate brief Appellants state and argue, as
   relevant here, the following issue: “Whether the District Court erred by
   affirming the Indemnity Trust Order, entered by the Bankruptcy Court on
   July 21, 2021, including, without limitation, by (a) holding that the Indemnity
   Trust Order did not effectuate a plan modification; and (b) holding that
   HCMFA lacked standing to appeal.” 2
           The parties dispute whether Appellants preserved issue (b) in their
   appellate brief, namely the issue of the district court’s dismissal of the appeal
   as to Dugaboy and HCMFA for lack of standing. Highland Capital asserts
   that Appellants have not preserved this issue for appeal because they did not
   mention this issue in their statement of the issues on appeal. We agree. As we
   have previously held, “the rules regarding preservation of issues on appeal in
   bankruptcy cases apply with equal force regardless of whether the appeal is
   from the bankruptcy court to the district court . . . from the district court to
   the court of appeals . . . or from the bankruptcy court to the court of
   appeals”—in other words, Appellants’ “statement of issues must be
   considered to determine whether [they] properly preserved for appeal the
   issues and arguments contained in [their] brief.” Id. at 511.
           As relevant here, Appellants’ statement of the issues on appeal
   includes the district court’s affirmance of the Order; however, it does not
   include the district court’s partial dismissal of the appeal on the basis that
   HCMFA and Dugaboy lacked standing. These are separate issues—in fact,
   they are separate decrees—and Appellants’ statement of the issues on appeal

           2
            In separate briefing, Dugaboy challenged solely the portion of the district court’s
   opinion holding that Dugaboy lacked standing to pursue the appeal.

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   does not fairly encompass the separate issue of the district court’s dismissal
   for lack of standing. See Galaz v. Katona (In re Galaz), 841 F.3d 316, 324–25
   (5th Cir. 2016) (rejecting the notion that we should construe the statement
   of the issues on appeal broadly). Therefore, Appellants did not preserve for
   appeal a challenge to the district court’s partial dismissal below for lack of
   standing. The appeals of HCMFA and Dugaboy remain dismissed below and,
   for this reason, they must be dismissed from the current appeal as well.
           Unlike HCMFA and Dugaboy, NexPoint was not dismissed from the
   appeal below. The district court determined that NexPoint had standing to
   pursue the appeal, and the parties do not contest this issue. Nonetheless, we
   may consider prudential standing issues sua sponte. Bd. of Miss. Levee
   Comm’rs v. EPA, 674 F.3d 409, 417–18 (5th Cir. 2012). “[S]tanding to appeal
   a bankruptcy court order is, of necessity, quite limited.” In re Dean, 18 F.4th
   at 844 (quoting Furlough v. Cage (In re Technicool Sys., Inc.), 896 F.3d 382, 385
   (5th Cir. 2018)). This circuit uses the “person aggrieved” standard to
   determine whether a party has standing to appeal a bankruptcy court order.
   Id.; see also Gibbs & Bruns LLP v. Coho Energy Inc. (In re Coho Energy Inc.), 395
   F.3d 198, 202 (5th Cir. 2004). This standard “is an even more exacting
   standard than traditional constitutional standing,” In re Dean, 18 F.4th at 844
   (quoting Fortune Nat. Res. Corp. v. U.S. Dep’t of Interior, 806 F.3d 363, 366
   (5th Cir. 2015)), as it requires an appellant to show she is “directly, adversely,
   and financially impacted by a bankruptcy order,” id. (quoting In re Technicool,
   896 F.3d at 384). When this appeal was initiated, NexPoint possessed the
   claim of Hunter Covitz valued at $250,000. 3 This claim, though small,

           3
             The claim was disallowed and expunged by the bankruptcy court on January 13,
   2022. However, this order has been appealed, and the district court reviewing the order
   disallowing this claim has not yet issued a ruling. For this reason, the bankruptcy court’s
   order is not final, and NexPoint still possesses the claim for the purposes of this appeal. Cf.
   Travelers Indem. Co. v. Bailey, 557 U.S. 137, 148 (2009) (holding that a bankruptcy court

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   requires the Claimant Trust to reserve funds against it, which makes
   NexPoint a person aggrieved by the Order. Accordingly, NexPoint has
   standing, and we proceed to the merits.
                                               IV.
           Appellants argue that the Order impermissibly effectuated a
   modification to the Plan previously approved by the bankruptcy court. We
   disagree and affirm.
           Under § 1127(b) of the Bankruptcy Code, “the reorganized debtor
   may modify such plan at any time after confirmation of such plan and before
   substantial consummation of such plan,” if “the court, after notice and a
   hearing, confirms such plan as modified, under section 1129 of this title.” 11
   U.S.C. § 1127(b). Plan modifications must comply with § 1125, which
   requires disclosure to claimholders and solicitation of their acceptance or
   rejection of the proposed modifications. Id. §§ 1125, 1127(c). Of course, not
   every proposed post-confirmation action by the reorganized debtor is a plan
   modification.      Although       the     Bankruptcy       Code      does     not     define
   “modification,” we have previously held that post-confirmation proposals
   constitute modifications in cases where they “would alter the parties’ rights,
   obligations, and expectations under the plan.” U.S. Brass Corp. v. Travelers
   Ins. Grp. (In re U.S. Brass Corp.), 301 F.3d 296, 309 (5th Cir. 2002).
           Appellants argue that the Order alters the parties’ rights, obligations,
   and expectations under the Plan in three ways: first, the Order requires the
   Claimant Trust to indemnify numerous parties beyond those authorized by

   order becomes final “on direct review” by the district court); Okla. State. Treasurer v. Linn
   Operating, Inc. (In re Linn Energy, L.L.C.), 927 F.3d 862, 866 (5th Cir. 2019) (describing
   final bankruptcy orders as “orders that are affirmed upon direct review, or . . . not appealed
   or contested”).

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   the Plan; second, the creation of a trust is different from the establishment of
   a reserve and is thus not contemplated by the Plan; and third, Highland
   Capital’s filing of the motion with the bankruptcy court necessarily admits
   that it sought to modify the Plan. But Appellants agree that, if the motion is
   not a Plan modification, then the bankruptcy court properly exercised its
   discretion to enter the Order.
           Highland Capital disagrees and instead characterizes the Order as one
   of several permissible ways it could have implemented the Plan. In its view,
   the Indemnity Sub-Trust accomplishes the same objective as D&O insurance
   and does not alter any party’s rights, obligations, or expectations under the
   Plan.
           The Claimant Trust Agreement, which was incorporated into and
   fully enforceable under the Plan, outlines several parties that shall be
   indemnified by the Claimant Trust: the Claimant Trustee, the Delaware
   Trustee, 4 the Oversight Board, and all past and present members of the
   Oversight Board. Appellants argue that the Plan permits the Claimant Trust
   to indemnify only these parties, while the Order requires the Claimant Trust
   to also indemnify the Reorganized Debtor’s professionals, officers, and
   employees. Greater indemnification obligations, they contend, risk reducing
   creditor recoveries because they entangle the Claimant Trust’s assets with
   the Reorganized Debtor’s post-confirmation activity. 5 Even if the Indemnity
   Sub-Trust does not indemnify the Reorganized Debtor’s professionals,

           4
            The Delaware Trustee has the power and authority to accept legal process served
   on the Claimant Trust in Delaware and to execute and file any required certificates with
   Delaware’s Office of the Secretary of State.
           5
             Appellants and Highland Capital agree that the Claimant Trust is authorized to
   indemnify the parties indemnified under the Litigation Sub-Trust Agreement, who are also
   beneficiaries under the Indemnity Sub-Trust.

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   officers, and employees, Appellants contend that up to $25 million of creditor
   recoveries will be irrevocably transferred to the Indemnity Sub-Trust in favor
   of these potential obligations.
          However, the Plan approves of such asset sharing; the Claimant
   Trust’s assets may be employed for the benefit of the Reorganized Debtor
   without any relevant limitations. Under the Claimant Trust Agreement, the
   Claimant Trust is permitted to withhold funds from disbursement that,
   among other things, are “necessary to pay or reserve for reasonably incurred
   or anticipated Claimant Trust Expenses and any other expenses incurred by
   the Claimant Trust.” Claimant Trust Expenses encompass the “costs,
   expenses, liabilities, and obligations incurred by the Claimant Trust and/or
   the Claimant Trustee in administering and conducting the affairs of the
   Claimant Trust, and otherwise carrying out the terms of the Claimant Trust
   and the Plan on behalf of the Claimant Trust.” As part of its duties under the
   Plan, 6 the Claimant Trust may “make additional capital contribution to the
   Partnership,” which includes the Reorganized Debtor, if requested by
   HCMLP GP LLC, which itself is wholly owned by the Claimant Trust. The
   Plan contains no limitations on such capital contributions in either amount or
   purpose. Separately, the Plan requires the Claimant Trustee to “exercise and
   perform the rights, powers, and duties arising from the Claimant Trust’s
   role” as sole member of HCMLP GP LLC and HCMLP GP LLC’s role as
   general partner of the Reorganized Debtor. Such duties include, as relevant
   here, calling capital from the Claimant Trust to the Reorganized Debtor as
   necessary. Therefore, the Claimant Trust may contribute capital to the
   Reorganized      Debtor     for   any    purpose,    including     indemnification.
   Accordingly, creditors face no greater risk of lost recoveries following the

          6
             The Reorganized LP Agreement, which lists this requirement, was incorporated
   by reference into the Plan.

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   Order than they did under the Plan; the Plan always permitted the Claimant
   Trust to use its assets in this manner. 7
            Appellants also argue that the Plan did not sanction the creation of the
   Indemnity Sub-Trust. They concede that the Plan allows the Claimant Trust
   to establish a reserve but aver that the Indemnity Sub-Trust goes far beyond
   that allowance. In their view, the Indemnity Sub-Trust grants extraneous
   relief not contemplated by the Plan in several respects: it involves appointing
   a corporate trustee, who receives indemnification; the Indemnity Trust
   Administrator may hire her own financial and legal professionals, and the
   Claimant Trust must pay their fees; beneficiaries have no rights with respect
   to the administration of the Indemnity Sub-Trust; and it eliminates the
   Oversight Board’s authority over investments held by the Indemnity Sub-
   Trust.
            These arguments are unavailing. The Plan allows for the creation of a
   reserve and contemplates the use of D&O insurance to provide collateral
   security supporting the indemnification obligations it outlines. The
   Indemnity Sub-Trust serves the same purpose and is one of several ways
   Highland Capital could, as the Plan demands, “reserve or retain any
   cash . . . reasonably necessary to meet claims and contingent liabilities,”
   including indemnification obligations. By arguing that the Plan did not permit
   the creation of the Indemnity Sub-Trust, Appellants seek to restrain
   Highland Capital’s exercise of its authority to those actions clearly defined in
   the Plan. However, that is not the proper inquiry. Instead, we must determine

            7
              For this reason, Appellants’ arguments regarding the irrevocability of the
   Claimant Trust’s $25 million in funding to the Indemnity Sub-Trust are without merit.
   Even so, the funds are not irrevocable. Once all indemnification rights—which are senior
   priority obligations to distributions to the Claimant Trust’s beneficiaries—have expired,
   the funds are transferred back to the Claimant Trust.

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   whether the use of the Indemnity Sub-Trust, as opposed to a reserve or D&O
   insurance, alters the parties’ rights, obligations, and expectations. In re U.S.
   Brass, 301 F.3d at 309.
          In U.S. Brass, we considered a confirmed plan of reorganization that
   provided certain claims “would be resolved in a court of competent
   jurisdiction and determined by settlement or final judgment” and a
   subsequent proposed agreement “to liquidate the claims through binding
   arbitration.” Id. at 299. We held that the proposed agreement constituted a
   plan modification for several reasons. Under the plan, the requirement to
   resolve claims by settlement or final judgment minimized the risk of
   collusion, whereas arbitration would allow parties to “collusively generate a
   binding award that is inconsistent with the facts and applicable law” of the
   approved plan. Id. at 308. Moreover, arbitration of claims was not
   contemplated and negotiated by the parties at plan confirmation—in fact, the
   insurers were actively concerned with collusive behavior among parties
   during plan negotiations, and the bankruptcy court decided not to confirm
   the plan until insurers were satisfied with the plan and withdrew their
   objections. Id. In short, the parties specifically bargained for the right to
   litigate or settle their claims, and arbitration undercut those bargained-for
   rights. For that reason, we ruled that the proposed agreement constituted a
   plan modification.
          Here, the record shows that securing funds for indemnification
   obligations was particularly important for agreement to the Plan. The Plan
   includes D&O insurance as a waivable condition precedent, and the
   condition was waived only upon approval of the motion seeking authorization
   for the creation of the Indemnity Sub-Trust. In Seery’s words, it was crucial
   that the parties “could reserve for, protect, and indemnify the
   indemnification obligations that each of the trusts and the Reorganized
   Debtor have to those running it.” But the mechanism for providing collateral

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   security was not clearly defined as part of the Plan—D&O insurance was one
   option, but it also more generally permitted the Claimant Trust to reserve
   funds for indemnification obligations. The precise contours of the collateral
   mechanism were not a “bargain” won during Plan negotiations. See In re U.S.
   Brass, 301 F.3d at 308. Rather, indemnification was the bargained-for
   requirement, and the details were left to be determined. As previously
   explained, the Order does not alter the parties’ rights, obligations, or
   expectations under the Plan because the Plan permits the Claimant Trust to
   contribute capital to the Reorganized Debtor for indemnification.
          Moreover, the supposed extraneous relief created by the Indemnity
   Sub-Trust is nothing new. The Indemnity Sub-Trust is an agent of the
   Claimant Trust, so its employees and appointees are contemplated by the
   Plan and have rights to payment and indemnification. Indemnification
   beneficiaries would have no rights with respect to the indemnity funds
   regardless of whether they were held by the Indemnity Sub-Trust or the other
   post-confirmation entities. And while the Oversight Board must approve the
   investment of Claimant Trust Assets (as defined in the Plan), it is not obvious
   that this includes assets transferred to other entities such as the Indemnity
   Sub-Trust. Even if it does, Appellants have failed to explain how this alters
   the rights, obligations, or expectations of the parties; absent Oversight Board
   approval, the Plan still strictly limits how assets may be invested.
          Lastly, Appellants question why Highland Capital filed the motion in
   the first place, suggesting that there is no reason to file a motion with the
   bankruptcy court unless the requested relief somehow modifies the Plan. For
   this argument, they rely upon our statement in U.S. Brass that, “if the
   agreement is indeed consistent with the plan, the question becomes
   why . . . file the motion for approval.” 301 F.3d at 307. Highland Capital
   answered this question at oral argument. In its view, proceeding by motion
   during the period between confirmation and the effective date is not unusual.

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Case: 22-10189     Document: 00516606273            Page: 17    Date Filed: 01/11/2023

                                     No. 22-10189

   Nor was it unique in this case: during that period, Highland Capital filed a
   motion for exit financing with the bankruptcy court, and it was approved. We
   are satisfied by this explanation in light of the circumstances of this case.
                                          V.
          For the foregoing reasons, the appeal is DISMISSED IN PART
   and the judgment of the district court is AFFIRMED.

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