       IN THE UNITED STATES COURT OF APPEALS
                FOR THE FIFTH CIRCUIT United States Court of Appeals
                                               Fifth Circuit

                                                                FILED
                                                               March 31, 2008

                                No. 07-20301              Charles R. Fulbruge III
                                                                  Clerk

In The Matter Of: SEVEN SEAS PETROLEUM INC

                                          Debtor

-----------------------------
HIGHLAND CAPITAL MANAGEMENT LP;
ML CBO IV (CAYMAN) LTD; PAMCO CAYMAN LIMITED;
PAM CAPITAL FUNDING LP; FAMCO VALUE INCOME
PARTNERS, LP; FAMCO OFFSHORE LTD

                                          Appellants
v.

CHESAPEAKE ENERGY CORPORATION;
SEVEN SEAS PETROLEUM INC

                                          Appellees



                Appeal from the United States District Court
                     for the Southern District of Texas


Before KING, DEMOSS, and SOUTHWICK, Circuit Judges.
KING, Circuit Judge:
      A secured creditor of a bankrupt corporation was sued by an unsecured
creditor of the same corporation in state court and removed the claims against
it to federal court, asserting that the claims were property of the bankruptcy
estate and that the unsecured creditor had no right to assert them. The
                                  No. 07-20301

bankruptcy court agreed that the claims were property of the estate, denied the
unsecured creditor’s motion to remand, and dismissed the claims. The district
court affirmed on appeal. For the reasons that follow, we conclude that the
claims are not property of the bankruptcy estate and must be remanded to state
court.
                                        I.
         The appellants in this case, a group of investment funds (the
“bondholders”), hold $30 million in unsecured notes issued by Seven Seas
Petroleum, Inc., a Houston-based company that was forced into bankruptcy in
December 2002. Seven Seas issued the notes as part of a $110 million debt
offering in May 1998. The bondholders did not purchase the unsecured notes
from Seven Seas; instead, they purchased the unsecured notes either in private
transactions or on the secondary market at various times in 1999, 2000, and
2002.
         Prior to its bankruptcy, Seven Seas explored and developed oil and gas
properties in South America through the operations of its wholly-owned
subsidiaries. To comply with certain SEC reporting requirements, Seven Seas
engaged Ryder Scott Company, a reservoir-evaluation consulting firm, to provide
reserve estimates calculated in accordance with the SEC’s “proved reserves”
guidelines. These reserve estimates were incorporated into Seven Seas’ annual
reports on Form 10-K beginning in 1998, when the company’s stock began
trading on the American Stock Exchange, and were also included in the
prospectus for the $110 million debt offering.
         The reserve estimates prepared by Ryder Scott were important to the
bondholders for two reasons. First, the bondholders claim to have relied on
these estimates when deciding whether to invest in the unsecured notes.
Second, Seven Seas’ ability to issue secured debt—which would be senior to the
unsecured notes held by the bondholders—was tied to the reserve estimates.


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Specifically, under the terms of the unsecured notes, Seven Seas could not issue
secured debt exceeding the greater of $25 million or the sum of cash on hand,
certain receivables, and thirty percent of the discounted net present value of
reserves.
      Seven Seas did in fact issue $45 million in senior, secured notes in July
2001, shortly after it had reported reserves of 47.9 million barrels of oil, with a
discounted value of just over $394 million, on its 10-K for the year ended
December 31, 2000. Robert A. Hefner, III, the chairman and CEO of Seven Seas,
led a group of investors that purchased half of the secured notes. This group
included several of the company’s other directors.          Chesapeake Energy
Corporation, an Oklahoma-based independent oil and gas producer, purchased
the remaining half of the notes. The collateral for the secured notes was
substantially all of Seven Seas’ assets. In addition, the secured notes featured
detachable warrants that gave the holders the right to purchase Seven Seas
stock for $1.78 per share. These warrants represented options on 40% of the
company’s common shares. Seven Seas planned to use the proceeds from the
secured notes to fund an exploratory well in Colombia, as well as for other
business operations.
      Things did not go well for Seven Seas. By July 2002 it became apparent
that the exploratory well in Colombia, which had reached a depth of almost
19,000 feet, was likely to be a failure. Shortly thereafter, Seven Seas announced
that it was suspending further development of its shallow reserves.           The
following month, the company revised its reserve estimates downward to 16.3
million barrels—a 66% decrease from the figure reported in Seven Seas’ 10-K for
the year ended December 31, 2001—and took a substantial write-down to
account for the diminished discounted value of this revised reserves figure. In
September 2002, Seven Seas’ management informed representatives of investors
in the unsecured notes that the company’s assets were worth $49 million, but


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that liabilities on the secured notes alone were $52 million. These events
prompted a number of investors in the unsecured notes, including some of the
bondholders, to file an involuntary Chapter 7 bankruptcy petition against Seven
Seas in the Bankruptcy Court for the Southern District of Texas. Seven Seas
converted the involuntary bankruptcy case to a Chapter 11 reorganization, and
a trustee was appointed.
       The trustee commenced an adversary proceeding against Chesapeake and
the other holders of the secured notes on behalf of the Seven Seas bankruptcy
estate. Among other things, the trustee sought to re-characterize the $45 million
secured debt transaction as an equity contribution.1 The trustee also brought
tort claims against Chesapeake, alleging, among other things, that it had
breached duties that it owed to Seven Seas and interfered with management’s
fiduciary duties.
       The trustee’s first amended complaint in the adversary proceeding
dropped most of the claims against Chesapeake (retaining only the claim seeking
to re-characterize Chesapeake’s investment in the secured notes as an equity
contribution), but added claims against Hefner and other Seven Seas directors
for breach of various fiduciary duties. According to the trustee’s amended
complaint, Hefner and the directors knew that Seven Seas was insolvent or of
questionable solvency and arranged to provide additional financing—in the form
of the $45 million secured debt offering that they participated in along with
Chesapeake—on terms that were highly advantageous for the holders of the


       1
         In addition to the fact that the detachable warrants gave holders of the secured notes
the right to purchase Seven Seas common stock for $1.78 per share, the trustee identified
several aspects of Chesapeake’s investment in the secured notes that gave the transaction the
substance and character of an equity contribution. The original agreement between
Chesapeake and Seven Seas did not require Seven Seas to make interest payments to
Chesapeake during the first two years after the transaction. It also gave Chesapeake
substantial control over Seven Seas, including the rights to appoint two directors to the
company’s board, receive dividend payments, participate in future public and private offerings,
and approve certain budgets, expenditures, and business plans.

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                                       No. 07-20301

secured notes but detrimental to the company and its other creditors. Since
their $45 million investment was secured by substantially all the assets of the
company, the holders of the secured notes faced little risk. However, they stood
to profit tremendously if the exploratory well in Colombia proved to be a success,
because the secured notes’ detachable warrants gave them the right to increase
their equity stake in the company. For the company and its unsecured creditors,
though, the $45 million secured debt transaction was a tremendously risky
proposition: if the exploratory well turned out to be dry, the company would
likely have to enter bankruptcy, and would have few, if any, assets available to
satisfy the claims of unsecured creditors.
       The trustee and Chesapeake eventually reached a settlement whereby
Chesapeake agreed to give up some of its collateral in exchange for a complete
release of claims by the Seven Seas bankruptcy estate.                      The settlement
agreement was part of the trustee’s second amended reorganization plan, which
was confirmed by the bankruptcy court in August 2003.2 Chesapeake was
subsequently dismissed with prejudice from the adversary proceeding. The
trustee continued to pursue claims against Hefner and the other directors on
behalf of the estate in an action that is still pending in the district court.
       Meanwhile, shortly after Seven Seas entered bankruptcy, the bondholders
sued Ryder Scott in state court for negligent misrepresentation.3 They later
added claims for fraud, violation of the Texas Securities Act, and aiding and


       2
         The release contained in the plan provides that “the Trustee, on behalf of the [Seven
Seas bankruptcy] Estate . . . shall be deemed to have compromised and settled with, and fully
released and forever discharged [Chesapeake] . . . from any and all past, present, or future
claims, . . . including, without limitation, all causes of action, whether known or unknown
which the Estate . . . now ha[s], claims to have, ha[s] ever had, or would but for this release,
have had in the future arising from, related to or on account of the [trustee’s adversary
proceeding against Chesapeake], . . . all matters raised or which could have been raised in the
[the adversary proceeding], . . . or the [Seven Seas bankruptcy case] . . . .”
       3
          Two of the bondholders were not initially parties to this suit but were added as
plaintiffs later.

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                                  No. 07-20301

abetting fraud. In support of the misrepresentation claim, the bondholders
alleged that Ryder Scott owed them a duty to use reasonable care in calculating
the reserve estimates, that Ryder Scott breached this duty, that the bondholders
relied on the reserve estimates, and that, as a consequence, they lost almost all
of their investment in the unsecured notes. Similarly, in support of the fraud
claim, the bondholders alleged that they relied upon the reserve reports, which
Ryder Scott knew to be false or to have been made with a reckless disregard for
truth. The Texas Securities Act and aiding and abetting fraud claims charged
that Ryder Scott had aided the commission of securities fraud and given
substantial assistance in support of a fraudulent scheme, respectively.
      Two months after the plan was confirmed in the Seven Seas bankruptcy
case and Chesapeake was dismissed from the trustee’s adversary proceeding, the
bondholders amended their state-court complaint to add Hefner and Chesapeake
as defendants, bringing claims of conspiracy to defraud and aiding and abetting
fraud against both. In their amended complaint, the bondholders made general
allegations regarding Ryder Scott’s role in calculating the reserve estimates, the
bondholders’ reliance on the reserve estimates, the issuance of $45 million in
secured notes, and the 66% downward revision in reserve estimates. With
regard to the circumstances of the $45 million secured debt transaction, the
picture that emerges from the bondholders’ amended complaint is similar to the
one found in the trustee’s first amended complaint in the adversary proceeding,
i.e., both complaints describe how the secured debt transaction was structured
in a way that minimized the risk to the holders of the secured notes and yet gave
them the means to capture the upside of the exploratory well in Colombia. In
addition, the bondholders alleged that without the reserve estimates provided
by Ryder Scott, the terms of the unsecured notes would have limited Seven Seas
to issuing $25 million in secured debt.



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                                   No. 07-20301

      Because they are the central focus of this appeal, we reproduce here, in
pertinent part, the two claims asserted by the bondholders against Chesapeake.
First, in a count labeled “Conspiracy to Defraud,” the bondholders charged that:
            Chesapeake [], Hefner, and Seven Seas entered into a
            common plan, scheme or design to defraud investors in
            the [unsecured notes], including [the bondholders], by
            issuing and purchasing the [secured notes] . . . in order
            to decrease the assets available to investors in the
            [unsecured notes]. Chesapeake [], Hefner and Seven
            Seas accomplished this fraud by employing the material
            misrepresentations and/or omissions contained in
            Ryder Scott’s reserve reports in order to induce
            potential investors and existing investors in [the
            unsecured notes] . . . to either acquire interests in . . . or
            to refrain from selling interests in [the unsecured
            notes]. Chesapeake [] and Hefner knew that the
            misrepresentations and/or omissions contained in
            Ryder Scott’s reserve estimates were false or had been
            made with reckless disregard as to their truth.

      Next, in a count labeled “Aiding And Abetting Fraud,” the bondholders
charged that:
            Chesapeake [] and Hefner and Ryder Scott are also
            liable for all damages caused by the aforementioned
            fraudulent schemes because each of these Defendants
            was aware the conduct by Seven Seas constituted a
            breach of duty and gave substantial assistance or
            encouragement to [] Seven Seas to continue with the
            scheme.

      Chesapeake invoked the bankruptcy removal statute, 28 U.S.C. § 1452, to
remove the claims against it to the District Court for the Southern District of
Texas, asserting as the basis for bankruptcy jurisdiction that the claims were
property of the Seven Seas bankruptcy estate and had been released through the




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                                           No. 07-20301

confirmation of the plan in the bankruptcy proceeding.4 The claims were
eventually referred to the bankruptcy court, which entertained motions in an
adversary proceeding. The bondholders moved to remand the case to state court,
arguing, among other things, that the claims against Chesapeake belonged to
the bondholders and were not property of the Seven Seas bankruptcy estate.
Chesapeake filed a motion to dismiss the bondholders’ complaint, arguing that
the claims were property of the estate, could only be brought by the trustee, and
had been released in the plan. In the alternative, Chesapeake argued that
principles of judicial estoppel barred the claims because the bondholders had
initiated the involuntary bankruptcy proceedings against Seven Seas, controlled
a creditors committee that supported the plan, and never objected to the plan’s
release of claims against Chesapeake.5

        4
         The bankruptcy removal statute authorizes a party to “remove any claim or cause of
action in a civil action . . . to the district court for the district where such civil action is pending,
if such district court has jurisdiction of such claim or cause of action under” the bankruptcy
jurisdiction statute. 28 U.S.C. § 1452(a). Ryder Scott and Hefner did not remove the claims
brought against them in the state court action, and the trial court granted summary judgment
in favor of both. The Houston Court of Appeals (First District) reversed with regard to Ryder
Scott and affirmed with regard to Hefner, relying in part on the bankruptcy court’s
determination (in a related proceeding) that the claims against Hefner were property of the
estate and concluding that the injury for which relief was sought against Hefner was derivative
of a direct injury to Seven Seas. See Highland Capital Mgmt., L.P. v. Ryder Scott Co., 212
S.W.3d 522, 531 (Tex. App.—Houston [1st Dist.] 2006, pet. denied). The Texas Supreme Court
denied discretionary review. Chesapeake argues that the state court appeal “do[es] not
involve Chesapeake and [is] not relevant to the central issue of this appeal: whether
[b]ondholders assert claims against Chesapeake that were estate property and that were
released under the confirmed bankruptcy plan that [b]ondholders themselves supported.”
        5
          Additional motions and pleadings raised largely the same issues. In a motion to
implement and enforce the plan that was filed in the main bankruptcy proceeding, Chesapeake
argued that the claims asserted by the bondholders were property of the estate and requested
that the bankruptcy court order the bondholders to cease prosecution of their suit against
Chesapeake. The trustee also filed a “response” in support of Chesapeake’s motion to
implement. The motion to implement was consolidated with the adversary proceeding
involving the removed claims. In addition, some of the bondholders were not added as
plaintiffs in the state court suit against Ryder Scott, Hefner, and Chesapeake until after
Chesapeake had removed the claims against it to federal court, so Chesapeake actually filed
another notice of removal to remove claims asserted by the second group of plaintiffs in the
state court litigation. These claims were identical to the claims that Chesapeake had already

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                                       No. 07-20301

       The bankruptcy court held hearings and entered orders denying the
bondholders’ motion to remand and dismissing the claims against Chesapeake.
In a supporting memorandum opinion, the bankruptcy court determined that the
claims asserted by the bondholders were property of the Seven Seas bankruptcy
estate, reasoning that:
              whether a claim is property of the estate depends on the
              nature of the injury and whether the debtor could have
              raised the claim under state law as of the
              commencement of the case. If Chesapeake and Hefner
              conspired to create claims with collateral rights senior
              to other creditors, then the harm is generalized to all
              creditors. Not only “could have” the Debtor raised the
              claims against Chesapeake, . . . the Debtor did raise
              those claims [in the trustee’s adversary proceeding].
              Therefore the claims against Chesapeake . . . are
              property of the estate.

The bankruptcy court then concluded that it had subject matter jurisdiction over
the case and that the motion to remand should be denied because the claims
were property of the estate, and allowing them to proceed would, in effect, be a
plan modification (since under the terms of the plan the estate’s claims against
Chesapeake were released).
       Turning to Chesapeake’s motion to dismiss, the bankruptcy court held that
dismissal was appropriate because the bondholders did not have the right to
assert claims belonging to the estate.             In addition, after noting that the
bondholders had participated in the bankruptcy proceeding and benefitted from
the estate’s release of claims against Chesapeake, the bankruptcy court stated
that because the bondholders “represented . . . that Chesapeake would be
released from claims based on alleged misconduct that is essentially the same
misconduct that” formed the basis for the bondholders’ state-court claims against


removed (and were consolidated with the earlier-removed claims in the bankruptcy court
adversary proceeding), so there is no need to differentiate between the two sets of claims here.

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Chesapeake, permitting them to sue Chesapeake “would . . . be allowing [them]
to play ‘fast and loose’ with the court.”
      The bondholders appealed to the district court, which affirmed without
explicitly concluding that the bondholders’ claims against Chesapeake were
property of the estate. Rather, the district court recognized that the bankruptcy
court had “brave[d] the quagmire” of deciding whether the claims were property
of the estate, but determined that it “need not reach this issue because (1)
subject-matter jurisdiction was satisfied through [the bondholders’] attempt to
subvert the Plan, and (2) the Bankruptcy Court permissibly enforced the Plan’s
release against [the bondholders] through equitable principles.” Specifically, the
district court found that the bankruptcy court had subject matter jurisdiction
because the bondholders, in suing Chesapeake, “were effectively seeking to have
the state court invalidate the Plan’s release . . . and settlement” of claims against
Chesapeake. It then concluded that estoppel principles barred the bondholders’
claims against Chesapeake, reasoning that it was inconsistent for the
bondholders to sue Chesapeake after they had initiated the bankruptcy case,
approved the plan and its release of Chesapeake, and “represented to the
Bankruptcy Court that they were releasing Chesapeake from its alleged
misconduct.” The bondholders filed timely notice of appeal.
                                         II.
      “Bankruptcy court rulings and decisions are reviewed by a court of appeals
under the same standards employed by the district court hearing the appeal
from bankruptcy court; conclusions of law are reviewed de novo, findings of fact
are reviewed for clear error, and mixed questions of fact and law are reviewed
de novo.” Century Indem. Co. v. Nat’l Gypsum Co. Settlement Trust (In re Nat’l
Gypsum Co.), 208 F.3d 498, 504 (5th Cir. 2000) (citing Traina v. Whitney Nat’l
Bank, 109 F.3d 244, 246 (5th Cir. 1997)). The bankruptcy court’s finding that
it had subject matter jurisdiction is a legal determination that we review de

                                         10
                                  No. 07-20301

novo. U.S. Brass Corp. v. Travelers Ins. Group (In re U.S. Brass Corp.), 301 F.3d
296, 303 (5th Cir. 2002). Whether a specific cause of action belongs to a
bankruptcy estate is likewise a matter of law that we decide by reference to the
facial allegations in the complaint. Schertz–Cibolo–Universal City, Indep. School
District v. Wright (In re Educators Group Health Trust), 25 F.3d 1281, 1285 (5th
Cir. 1994).
                                       III.
      The bondholders challenge the bankruptcy court’s denial of their motion
to remand as well as its dismissal of their claims against Chesapeake. Since the
bankruptcy court primarily rested both of these decisions on its determination
that the claims against Chesapeake belong to the Seven Seas bankruptcy estate,
resolution of this appeal largely turns on the question whether the claims are
property of the estate or the bondholders. If the claims belong to the estate, then
it was not error for the bankruptcy court to deny remand (because it has
jurisdiction over all property of the estate) and dismiss the claims (because the
trustee has exclusive standing to assert claims belonging to the estate).
                                        A.
      The filing of a bankruptcy petition creates an estate that is comprised of,
among other things, “all legal or equitable interests of the debtor in property as
of the commencement of the case.” 11 U.S.C. § 541(a)(1). The phrase “all legal
or equitable interests of the debtor in property” has been construed broadly, and
includes “rights of action” such as claims based on state or federal law. See Am.
Nat’l Bank of Austin v. MortgageAmerica Corp. (In re MortgageAmerica Corp.),
714 F.2d 1266, 1274 (5th Cir. 1983); In re Educators Group Health Trust, 25 F.3d
at 1283. If a claim belongs to the estate, then the bankruptcy trustee has
exclusive standing to assert it. In re Educators Group Health Trust, 25 F.3d at
1284. However, the trustee has no right to bring claims that belong solely to the



                                        11
                                  No. 07-20301

estate’s creditors. See Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416
(1972).
      Whether a particular state-law claim belongs to the bankruptcy estate
depends on whether under applicable state law the debtor could have raised the
claim as of the commencement of the case. In re Educators Group Health Trust,
25 F.3d at 1284 (citing S.I. Acquisition, Inc. v. Eastway Delivery Serv., Inc. (In
re S.I. Acquisition), 817 F.2d 1142 (5th Cir. 1987); In re MortgageAmerica, 714
F.2d at 1275–77). As part of this inquiry, we look to the nature of the injury for
which relief is sought and consider the relationship between the debtor and the
injury. Id. at 1284–85; see In re E.F. Hutton Sw. Props. II, Ltd., 103 B.R. 808,
812 (Bankr. N.D. Tex. 1989) (“The injury characterization analysis should be
considered as an inseparable component of whether an action belongs to the
[estate] or [creditor].”). “If a cause of action alleges only indirect harm to a
creditor (i.e., an injury which derives from harm to the debtor), and the debtor
could have raised a claim for its direct injury under the applicable law, then the
cause of action belongs to the estate.” In re Educators Group Health Trust, 25
F.3d at 1284 (citations omitted). “Conversely, if the cause of action does not
explicitly or implicitly allege harm to the debtor, then the cause of action could
not have been asserted by the debtor as of the commencement of the case, and
thus is not property of the estate.” Id.
      Our decision in Educators Group Health Trust illustrates these principles.
There, a group of school districts obtained health benefits for their teachers from
Educators Group Health Trust (“EGHT”). Id. at 1283. When EGHT went
bankrupt, the school districts sued the principals of EGHT’s third party-
administrator on various theories, including mismanagement of EGHT and
fraud. Id. We held that certain claims relating to the alleged mismanagement,
such as claims that the principals of the third-party administrator negligently
managed EGHT or conspired to make it insolvent, were property of the EGHT

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                                     No. 07-20301

bankruptcy estate, reasoning that the claims alleged an injury to the school
districts that derived from a direct injury to EGHT. Id. at 1285. However, we
held that other claims, such as fraud, conspiracy to commit fraud, and
misrepresentation, belonged solely to the school districts, id. at 1286, after
explaining that:
               We do agree . . . with the plaintiff school districts’
               contention that some of the causes of action allege a
               direct injury to themselves, which is not derivative of
               any harm to the debtor. For example, the plaintiff
               school districts allege . . . that the defendants
               intentionally misrepresented to them the financial
               situation of EGHT, and that they materially relied on
               such representations to their detriment. To the extent
               that this cause of action and others allege a direct
               injury to the plaintiff school districts, they belong to the
               plaintiff school districts and not the estate.

Id. at 1285.
                                           B.
      The bondholders contest the bankruptcy court’s determination that the
claims are property of the estate by arguing that the claims could not have been
brought by Seven Seas prior to the bankruptcy proceeding. They characterize
the claims as arising out of a fraud, in which Chesapeake conspired or assisted,
involving the reserve estimates. According to the bondholders, Seven Seas could
not have brought claims based on the damages that they suffered as a result of
their reliance on the false reserve estimates when they invested in the unsecured
notes, as Seven Seas simply was not harmed by misrepresentations made to the
bondholders to induce them to buy (or refrain from selling) the notes on the
secondary market. Chesapeake counters that the harm complained of by the
bondholders is strictly derivative or indirect because the issuance of the secured
notes and the alleged conspiracy involving the reserve estimates were acts that
contributed to Seven Seas’ subsequent lack of assets to repay its creditors.

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                                 No. 07-20301

Nothing here is peculiar or personal to the bondholders, Chesapeake contends;
instead, the claims as pled are common to all of Seven Seas’ unsecured creditors.
      As a preliminary matter, we recognize that the bondholders and
Chesapeake are linked in a variety of ways to Seven Seas and the bankruptcy
proceeding. Both Chesapeake and the bondholders are creditors of Seven Seas,
and the bondholders’ claims against Chesapeake ultimately arise from the fact
that the bondholders invested in the unsecured notes issued by Seven Seas.
However, the existence of common parties and shared facts between the
bankruptcy and the bondholders’ suit does not necessarily mean that the claims
asserted by the bondholders are property of the estate. Indeed, as Educators
Group Health Trust demonstrates, it is entirely possible for a bankruptcy estate
and a creditor to own separate claims against a third party arising out of the
same general series of events and broad course of conduct. See also Feld v. Zale
Corp. (In re Zale Corp.), 62 F.3d 746, 753 (5th Cir. 1995) (“Shared facts between
the third-party action and a debtor-creditor conflict do not in and of themselves
suffice to make the third-party action ‘related to’ the bankruptcy [for purposes
of finding bankruptcy jurisdiction].”). We turn our focus, then, to the specific
claims at issue here.
      Having examined the claims asserted by the bondholders against
Chesapeake, we warn that it is somewhat difficult to discern the precise theory
of recovery they advance. But as we discuss below, whether the claims will
ultimately prove to be legally or factually valid is not our concern. The narrow
question before us is whether the claims belong to the estate or to the
bondholders. Answering this question requires that we apply the principles
discussed above—namely, we consider whether under state law Seven Seas
could have raised the claims as of the commencement of the bankruptcy, and
examine the nature of the injury for which relief is sought.



                                       14
                                  No. 07-20301

      Taking this latter point first, we think that the claims allege more than an
injury that is merely derivative of an injury to Seven Seas. For example, the
conspiracy to defraud claim alleges that Chesapeake “knew that the
misrepresentations and/or omissions contained in Ryder Scott’s reserve
estimates were false or had been made with reckless disregard as to their truth,”
and that Chesapeake, Hefner, and Seven Seas “employ[ed] the material
misrepresentations and/or omissions . . . in order to induce potential investors
and existing investors in [the unsecured notes] . . . to either acquire interests in
. . . or to refrain from selling interests in [the unsecured notes].” If Chesapeake
knew that the reserve estimates were false and used them to induce the
bondholders to purchase or refrain from selling the unsecured notes, then there
was a direct injury to the bondholders that was independent of any injury to
Seven Seas. Indeed, we fail to see what direct injury Seven Seas might have
suffered on account of the specific wrongdoing that the bondholders complain of
here. Although Seven Seas is not named as a defendant, the bondholders’ theory
is that Seven Seas itself was a wrongdoer, in conjunction with Chesapeake and
Hefner. It is thus not surprising that the injury that this claim alleges is not
derivative of an injury to Seven Seas.
      Similarly, the bondholders state in their aiding and abetting fraud claim
that Chesapeake is “liable for all damages caused by the aforementioned
fraudulent schemes because [it] was aware the conduct by Seven Seas
constituted a breach of duty and gave substantial assistance or encouragement
to [] Seven Seas to continue with the scheme.” Presumably the “aforementioned
fraudulent schemes” that the bondholders refer to in this claim relate to the
publishing of false reserve estimates; elsewhere the bondholders allege that they
“relied upon the material misrepresentations and omissions contained in reserve
reports for [] Seven Seas,” and that their “reliance . . . was the proximate cause
of . . . damages.” Thus, to the extent that the aiding and abetting fraud claim


                                         15
                                        No. 07-20301

effectively seeks to hold Chesapeake liable for giving assistance to Seven Seas
in publishing false reserve estimates that the bondholders relied on to their
detriment, this claim too alleges a direct injury to the bondholders.
       We also doubt that, under applicable state law, Seven Seas could have
raised either claim as of the commencement of the bankruptcy case. Conspiracy
to defraud essentially requires a showing of a common purpose to defraud,
supported by a concerted action. See Schlumberger Well Surveying Corp. v.
Nortex Oil & Gas Corp., 435 S.W.2d 854, 857 (Tex. 1968). “But the gist of a civil
conspiracy is the damage resulting from commission of a wrong which injures
another, and not the conspiracy itself.” Id. at 856 (citations omitted). Here the
underlying wrong is fraud in connection with the purchase of bonds in the
secondary market, and Seven Seas would not have been in a position to assert
the bondholders’ reliance on any alleged misrepresentations, or to claim to have
suffered damages on account of such reliance, as would be necessary to state a
claim based on the particular fraud that the bondholders complain of. See Stone
v. Lawyers Title Ins. Corp., 554 S.W.2d 183, 185 (Tex. 1977). The same is true
for the aiding and abetting fraud claim.
       We do recognize that the conspiracy to defraud claim contains an
allegation that “Chesapeake [], Hefner, and Seven Seas entered into a common
plan, scheme or design to defraud investors in the [unsecured notes], including
[the bondholders], by issuing and purchasing the [secured notes] . . . in order to
decrease the assets available to investors in the [unsecured notes].” Chesapeake
argues that this and similar statements elsewhere in the bondholders’ complaint
show that any alleged wrongdoing on the part of Chesapeake caused direct
injury only to Seven Seas, by impacting its ability to pay its creditors.6 We

       6
        A form of this argument can also be seen in the bankruptcy court’s statement, made
in support of its determination that the claims belong to the estate, that “[i]f Chesapeake . . .
conspired to create claims with collateral rights senior to other creditors, then the harm is
generalized to all creditors.”

                                               16
                                        No. 07-20301

disagree. This argument overlooks the bondholders’ inducement allegations,
which, as described above, complain of an injury that is not merely derivative of
an injury to Seven Seas.7
       In sum, then, we believe that the claims brought by the bondholders allege
an injury that is not merely derivative of an injury to Seven Seas, and that
Seven Seas could not have asserted the claims as of the commencement of the
bankruptcy case. That is not to say, of course, that Seven Seas might not also
have suffered its own direct injury because of some wrongdoing on the part of
Chesapeake, or could not have brought any claims against Chesapeake as of the
commencement of the case.             Indeed, the trustee did bring claims against
Chesapeake on behalf of the estate, alleging, among other things, that
Chesapeake breached duties that it owed to Seven Seas and interfered with
management’s duties to Seven Seas. But the bondholders’ claims and the
estate’s claims are not mutually exclusive:                there is nothing illogical or
contradictory about saying that Chesapeake might have inflicted direct injuries
on both the bondholders and Seven Seas during the course of dealings that form
the backdrop of both sets of claims. In the present posture of this case we are
only dealing with allegations, and we must take them on their face. The claims



       7
          Furthermore, although the issuance of the secured notes ultimately impacted all of
Seven Seas’ unsecured creditors when the company went bankrupt, since substantially all of
the company’s assets had been tied up as collateral for the benefit of the holders of the secured
notes, it does not necessarily follow that the bondholders suffered no direct injury on account
of the issuance of the secured notes. In fact, the provision in the unsecured notes that limited
Seven Seas’ ability to issue secured debt (by tying the issuance of secured debt in excess of $25
million to, among other things, the discounted value of reserves) was meant to protect the
holders of the unsecured notes from precisely the scenario that unfolded: the issuance of a
large amount of secured debt, relative to the value of the company’s assets, that left few if any
of those assets uncollateralized. Seven Seas’ other unsecured creditors, such as lessors or
suppliers, had no such protection written into their agreements with Seven Seas, so far as we
know. Thus, if Chesapeake, Hefner, and Seven Seas conspired to publish overstated reserve
estimates in order to get around the unsecured notes’ limitation on secured debt, the holders
of the unsecured notes, including the bondholders, were harmed by the issuance of the secured
notes in a way that other unsecured creditors were not.

                                              17
                                  No. 07-20301

asserted by the bondholders against Chesapeake allege an injury that is not
merely derivative of an injury to Seven Seas, and could not been brought by
Seven Seas. We hold that these claims are not property of the Seven Seas
bankruptcy estate.
      It bears emphasizing that our holding here is a narrow one that in no way
passes on the merits of the claims. It is not our place to consider whether the
bondholders’ allegations are sufficient to state a cause of action under Texas law,
or to speculate as to what set of facts might ultimately be proven in support of
recovery. For this reason, several of the objections that Chesapeake raises
against the claims—that the claims do not allege that the bondholders had any
contractual privity with Chesapeake, or allege that Chesapeake owed the
bondholders any legal duties, or explain how Chesapeake might have benefitted
when the bondholders acquired interests in the unsecured notes—are largely
irrelevant to the narrow issue before us.        Simply put, the fact that the
bondholders ultimately may be unable to prevail on the claims does not render
the claims property of the estate.
      We also wish to dispel any notion that a claim belongs to the estate or is
otherwise only assertable by the trustee merely because it could be brought by
a number of creditors, instead of just one. Drawing on certain language found
in Schimmelpenninck v. Byrne (In re Schimmelpenninck), 183 F.3d 347 (5th Cir.
1999), Chesapeake suggests that the claims in this case allege a “generalized
injury” or raise a “generalized grievance,” and that the trustee, rather than the
bondholders, is therefore the appropriate party to advance them.                In
Schimmelpenninck, we considered whether a creditor’s alter ego and single
business enterprise claims against a subsidiary of the debtor were subject to the
automatic stay provisions of section 362 of the Bankruptcy Code. Id. at 350.
The section 362(a)(3) stay applies to two types of claims: claims that belong to
the debtor under applicable state (or federal) law, and claims that seek to

                                        18
                                       No. 07-20301

recover property of the estate that is controlled by a person or entity other than
the debtor.8 See In re S.I. Acquisition, 817 F.2d at 1150. Before considering
whether the claims asserted by the creditor in Schimmelpenninck fell into the
second category of claims subject to the automatic stay, by reason of their
seeking to recover property of the estate, we noted that:
              It is in this perspective that the distinction between
              general and personal claims is both significant and
              consistent with the Bankruptcy Code. It is axiomatic
              that a trustee has the right to bring actions that will
              benefit the estate. Such claims can either be founded
              on the rights of the debtor or on the rights of the
              debtor’s creditors. If the right belongs to the debtor’s
              creditors, the distinction between personal and general
              claims takes on significance: A trustee can assert the
              general claims of creditors, but is precluded from
              asserting those creditor claims that are personal. In
              other words, even if a claim “belongs to” the creditor,
              the trustee is the proper party to assert the claim, for
              the benefit of all creditors, provided the claim advances
              a generalized grievance.

In re Schimmelpenninck, 183 F.3d at 359 (footnote omitted).
       We agree with Judge Posner that labeling certain claims of creditors
“personal”—as opposed to “general”—“is not an illuminating usage.” Steinberg
v. Buczynski, 40 F.3d 890, 893 (7th Cir. 1994). These terms are perhaps best
understood as descriptions to be applied after a claim has been analyzed to
determine whether it is properly assertable by the debtor or creditor, and not as
a substitute for the analysis itself. As Judge Posner explains:
              The point is simply that the trustee is confined to
              enforcing entitlements of the [debtor]. He has no right

       8
        We note that Chesapeake does not argue that the bondholders, through their claims
against Chesapeake, are improperly seeking to recover property of the estate that is merely
under the control of Chesapeake (i.e., that any recovery against Chesapeake will really be a
recovery of assets that belong to the estate). Rather, Chesapeake’s position is that the claims
themselves are property of the estate.

                                              19
                                        No. 07-20301

               to enforce entitlements of a creditor. He represents the
               unsecured creditors of the [debtor]; and in that sense
               when he is suing on behalf of the [debtor] he is really
               suing on behalf of the creditors of the [debtor]. But
               there is a difference between a creditor’s interests in
               the claims of the [debtor] against a third party, which
               are enforced by the trustee, and the creditor’s own
               direct—not derivative—claim against the third party,
               which only the creditor . . . can enforce.

Id. The discussion of personal and general claims in Schimmelpenninck was not
meant to work a change to this well-established rule, even when the claims at
issue may be brought by a number of creditors instead of just one. Rather, our
point was that some claims that are usually brought by creditors outside of
bankruptcy (and thus in a sense may be said to “belong to” the creditors and not
the debtor) are nonetheless vested exclusively in the trustee in bankruptcy. This
is so not merely because the claims are common to a number of creditors, but
because they ultimately seek to recover assets of the estate that are not under
the debtor’s control—by reason of a fraudulent transfer,9 for instance, or because
of the existence of separate corporate entities that are a sham. This much is
made clear by our subsequent explanation that “[a]s not all claims necessarily
‘belong to’ the debtor—because either by statute or common law the debtor is
precluded from asserting the action—another mechanism must exist to prevent
individual creditors from annexing assets of the estate to gain an advantage.”
In re Schimmelpenninck, 183 F.3d at 360. It is “[a]ctions by individual creditors
asserting a generalized injury to the debtor’s estate, which ultimately affects all
creditors[,]” that can be said to raise a “generalized grievance,” not actions by


       9
          A typical fraudulent transfer claim is perhaps the paradigmatic example of a claim
that is “general” to all creditors in Schimmelpenninck’s sense of that term. It is normally the
debtor’s creditors, and not the debtor itself, that have the right to assert a fraudulent transfer
claim outside of bankruptcy, but in bankruptcy such a claim is usually brought by the trustee,
for the benefit of all creditors. This is because the claim is really seeking to recover property
of the estate. See In re MortgageAmerica, 714 F.2d at 1272.

                                               20
                                    No. 07-20301

creditors that are merely common to a number of them. Id. at 360 (emphasis
added).
                                          C.
        Our conclusion that the claims brought by the bondholders are not
property of the Seven Seas bankruptcy estate requires that the claims be
remanded to state court for lack of jurisdiction unless we can identify some other
basis for bankruptcy jurisdiction.       As noted previously, the district court
affirmed the denial of remand and dismissal of the clams but did not reach the
issue of whether the claims belonged to the estate or the bondholders. It thus
provided alternate grounds for those two decisions. First, it concluded that
“subject matter jurisdiction was satisfied through [the bondholders’] attempt to
subvert the Plan.” It then determined that equitable principles barred the
bondholders’ claims against Chesapeake, based on aspects of the bondholders’
participation in the Seven Seas bankruptcy proceeding.
        After a plan is confirmed, the bankruptcy court’s jurisdiction is limited to
matters pertaining to the implementation or execution of the plan. Bank of La.
v. Craig’s Stores of Tex., Inc. (In re Craig’s Stores of Tex., Inc.), 266 F.3d 388, 390
(5th Cir. 2001). This jurisdiction extends to matters that “impact compliance
with or completion of the reorganization plan.” In re U.S. Brass Corp., 301 F.3d
at 305.    The district court was thus correct in assuming that bankruptcy
jurisdiction would exist over any claims that attempt to “subvert” a confirmed
plan.
        Nonetheless, we cannot accept the district court’s conclusion that the
bondholders, in suing Chesapeake, “were effectively seeking to have the state
court invalidate the Plan’s release . . . and settlement” of claims against
Chesapeake. The plan only purports to release claims against Chesapeake that
are held by the estate. It does not release claims against Chesapeake that are
held by third parties. Indeed, it could not be otherwise. “‘While it is true that

                                          21
                                   No. 07-20301

the bankruptcy court’s confirmation of the plan binds the debtor and all creditors
vis-a-vis the debtor, it does not follow that a discharge in bankruptcy alters the
right of a creditor to collect from third parties.’” In re Zale Corp., 62 F.3d at 760
n.44 (quoting First Fidelity Bank v. McAteer, 985 F.2d 114, 118 (3d Cir. 1993)).
Section 524 of the Bankruptcy Code limits the scope of a discharge in bankruptcy
by providing that “discharge of any debt of the debtor does not affect the liability
of any other entity on, or the property of any other entity for, such debt.” 11
U.S.C. § 524(e). This section “prohibits the discharge of debts of nondebtors.”
In re Zale Corp., 62 F.3d at 760 (citations omitted). Since the plan only releases
the estate’s claims against Chesapeake (as that was all it could release), the
bondholders’ pursuit of their own claims against Chesapeake cannot be
characterized as an attempt to invalidate the release contained in the plan, and
jurisdiction is not available on this basis.
      Furthermore, the estoppel principles discussed by the district court are
insufficient to either confer jurisdiction on the bankruptcy court or justify
dismissal of the bondholders’ claims. The district court reasoned that it was
inconsistent for the bondholders to sue Chesapeake after they had initiated the
bankruptcy case, approved the plan and its release of Chesapeake, and
“represented to the Bankruptcy Court that they were releasing Chesapeake from
its alleged misconduct.” Chesapeake makes similar points in its brief. First of
all, we have come across no indication that the bondholders ever represented
that they intended to release their claims against Chesapeake.             That the
bondholders’ claims and the estate’s claims may have arose out of the same
series of events does not link them in such a way that the release of one set of
claims acts as a release of the other.
      More importantly, we disagree with the broader contention that, given the
bondholders’ involvement in the bankruptcy proceeding, it would somehow be
inequitable to allow them to sue Chesapeake. In fact, we think just the opposite:

                                         22
                                 No. 07-20301

it would be inequitable to penalize creditors for their active participation in a
bankruptcy proceeding by precluding them from asserting claims that they hold
against a party that also has some liability to the estate. The bondholders
served on the creditors committee and approved the plan’s release of claims
against Chesapeake. We may even assume that they led the charge in calling
for the commencement of an adversary proceeding against Chesapeake; after all,
as unsecured creditors they stood to benefit if the estate obtained any recovery
against Chesapeake or otherwise subordinated Chesapeake’s claims as a secured
creditor. But these actions are not inconsistent with the bondholders’ pursuit
of their own claims against Chesapeake. As unsecured creditors the bondholders
were entitled to push for actions that would benefit the estate and remedy
damages it suffered. They were also entitled to assert their own claims against
a third party based on discrete wrongs that caused direct damages to them. We
see nothing in equity that would justify a contrary result.
                                      IV.
      For the foregoing reasons, we VACATE the orders of the bankruptcy court
denying remand and dismissing the bondholders’ claims, and REMAND this case
to the bankruptcy court with instructions that it be remanded to state court.
Costs shall be borne by Chesapeake.




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