     Case: 18-40575   Document: 00515002398    Page: 1   Date Filed: 06/19/2019




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

                                                                  FILED
                                                               June 19, 2019
                                No. 18-40575
                                                               Lyle W. Cayce
                                                                    Clerk
In the Matter of: LINN ENERGY, L.L.C.; BERRY PETROLEUM
COMPANY, L.L.C.; LINNCO, L.L.C.; LINN ACQUISITION COMPANY,
L.L.C.; LINN ENERGY FINANCE CORPORATION; LINN ENERGY
HOLDINGS, L.L.C.; LINN EXPLORATION & PRODUCTION MICHIGAN,
L.L.C.; LINN EXPLORATION MIDCONTINENT, L.L.C.; LINN
MIDSTREAM, L.L.C.; LINN MIDWEST ENERGY, L.L.C.; LINN
OPERATING, INCORPORATED; MID-CONTINENT I, L.L.C.; MID-
CONTINENT II, L.L.C.; MID-CONTINENT HOLDINGS I, L.L.C.; MID-
CONTINENT HOLDINGS II, L.L.C.,

                  Debtors

OKLAHOMA STATE TREASURER, Unclaimed Property Division,

                  Appellee

v.

LINN OPERATING, INCORPORATED,

                  Appellant



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


Before DAVIS, JONES, and DENNIS, Circuit Judges.
EDITH H. JONES, Circuit Judge:
      The district court held that the bankruptcy court erred in dismissing a
post-confirmation attempt by the Oklahoma State Treasurer (“Treasurer”) to
obtain the right to unclaimed royalty payments owed by the oil and gas debtor.
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Because the Treasurer sat on its rights during the entire Chapter 11 process,
res judicata bars its claim. We REVERSE the district court judgment and
reinstate the bankruptcy court’s DISMISSAL of the Treasurer’s case.
                               I. BACKGROUND
      Linn Energy, LLC (“Linn”) is an oil and gas company that operates in
Texas and Oklahoma. In May 2016, Linn and fourteen affiliated entities filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The
bankruptcy court set a deadline requiring all “Proofs of Claims” from “[a]ll
governmental units holding claims . . . that arose . . . prior to the Petition Date”
to be filed by November 7, 2016. The Treasurer timely filed three proofs of
claim on August 29 for “unknown/contingent” amounts, which it described as
“unsecured.” The Treasurer stated that it had filed the claim pursuant to
Oklahoma’s “unclaimed property law,” and that it was “acting as a conservator
or custodian on behalf of the classes of persons . . . who have failed to claim
property owing to them for the statutory period of abandonment.”
      In November 2016, Linn filed a report with the Treasurer indicating that
it possessed $956,212.72 in unclaimed property but did not transfer those
assets to the Treasurer. The Treasurer contends that Linn was required by
state law to deliver the unclaimed-property funds when it filed the report, but
it did not then file an adversary complaint demanding that Linn turn over the
funds. Significantly, on December 5, the Texas Comptroller filed an adversary
complaint against Linn for unclaimed property owed to Texas residents after
Linn disclosed $1.5 million in unclaimed-property holdings to that agency. See
Complaint for Turnover and Payment of Unclaimed Property and Related
Relief, In re Linn Energy, LLC, No. 16-06023 (Bankr. S.D. Tex. Dec. 5, 2016),
ECF No. 1.
      On December 19, Linn sent all claimants in the bankruptcy case—
including the Treasurer and the Texas Comptroller—a ballot for voting on its
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proposed Plan of Reorganization (“the Plan”). The Treasurer did not vote, but
the Texas Comptroller filed an objection to confirmation because the Plan
purported to distribute the unclaimed property assets of Texas residents, as
unsecured assets, among parties other than the Comptroller. 1 On January 27,
2017, the bankruptcy court entered an order confirming the Plan, but the order
expressly authorized the Texas Comptroller to pursue its claims for unclaimed
property.
      Several features of the Plan are critical here. First, a section titled
“Preservation of Royalty and Working Interests” provided that “any right to
payment from a Royalty and Working interest, if any, shall be treated as a
Linn General Unsecured Claim under this Plan and shall be subject to any
discharge and/or release provided hereunder.”             Second, the vesting clause
stated that, except as otherwise provided in the Plan, “all property in each
Estate, all Causes of Action, and any property acquired by any of the Linn
Debtors pursuant to the Plan shall vest in [Linn], free and clear of all Liens,
Claims, charges, Interests, or other encumbrances” once the Plan became final.
Finally, the Plan’s discharge provision stated that, pursuant to Section 1141(d)
of the Bankruptcy Code, and except as otherwise stated by the Plan, “the
distributions, rights, and treatment that are provided in the Plan shall be in
complete satisfaction, discharge, and release, effective as of the Effective
Date[ ] of Claims[,] . . . Interests, and Causes of Action of any nature
whatsoever.”     That section of the Plan further enjoins any parties to the
proceedings from commencing or continuing a claim related to the bankruptcy
estate after the Plan received final approval.



      1 See Texas Comptroller of Public Accounts Objection to Confirmation of the Linn Plan
[Dkt. No. 1333] and the Berry Plan [Dkt. No. 1390], In re Linn Energy, LLC, No. 16-60040
(Bankr. S.D. Tex. Jan. 17, 2017), ECF No. 1548.

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      All parties to the bankruptcy case had fourteen days in which to appeal
the order, see Fed. R. Bankr. P. 8002, and on the final day of the appeal period,
a group of claimants moved for reconsideration and relief from the order. 2
After the claimants agreed to a stipulation with Linn, the motion for
reconsideration was withdrawn with prejudice on March 6. 3 Thereafter, no
claimant appealed the order or moved for reconsideration, and the
confirmation became final on March 20.
      About two months later, Linn objected to the Treasurer’s proofs of claim
for “unknown contingent” unclaimed property, asserting that it was not liable
for such claims and that the Bankruptcy Code preempted state unclaimed
property laws. The Treasurer responded to the objection and then filed an
adversary complaint against Linn.               The Treasurer asserted that Linn
possessed, but did not own, $965,216.72 in unclaimed property consisting of
investors’ mineral royalties from Linn’s Oklahoma oil and gas operations and
that Linn was required by Oklahoma law to turn over the funds to the
Treasurer.
      Linn moved to dismiss the Treasurer’s adversary complaint pursuant to
Bankruptcy Rule 7012(b)(6), analogous to Fed. R. Civ. P. 12(b)(6), asserting
that the claim violated the Plan’s injunction, vesting, and discharge provisions
and was barred by the principles of res judicata and preemption.                     The
Treasurer re-emphasized that the unclaimed property never belonged to Linn.



      2See James H. Niven’s, Charles E. Hinkle’s, and Bianchi Family Ltd. Partnership’s
Motion for Reconsideration of Purported Disallowance of Claims; Relief from the
Confirmation Order; or, in the Alterative, to Alter or Amend Cure Amount in the
Confirmation Order, In re Linn Energy, LLC, No. 16-60040 (Bankr. S.D. Tex. Feb. 10, 2017),
ECF No. 1691.

      3 See Stipulation and Agreed Order Between Debtors James H. Niven, Charles E.
Hinkle, and Bianchi Family Ltd. Partnership, In re Linn, LLC, No. 16-60040 (Bankr. S.D.
Tex. Mar. 6, 2017), ECF No. 1779.
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Consequently, it never became part of the bankruptcy estate and could not be
governed by the Plan. After a hearing, the bankruptcy court sided with Linn.
Granting the motion to dismiss, the court concluded that the Treasurer had
“received more than adequate due process,” and that its complaint amounted
to a prohibited “collateral attack” on the confirmed Plan.
       The Treasurer appealed to the district court, which reversed the
bankruptcy court’s dismissal on the grounds that the unclaimed property never
became part of the bankruptcy estate, and therefore the bankruptcy court did
not have jurisdiction to adjudicate its status. Linn moved for rehearing, but
the district court denied the motion. Linn timely appealed.
                             II. STANDARD OF REVIEW
       This court reviews “the decision of a district court sitting as an appellate
court in a bankruptcy case by applying the same standards of review to the
bankruptcy court’s findings of fact and conclusions of law as applied by the
district court.”    In re Lopez, 897 F.3d 663, 668 (5th Cir. 2018) (internal
quotation marks and citations omitted). As such, this court acts “as a second
review court” and reviews the bankruptcy court’s conclusions of law de novo
and its findings of fact for clear error. Id. (internal quotation marks and
citations omitted).
                                   III. DISCUSSION
       Linn advances four arguments challenging the district court’s decision.
First, Linn argues that, contrary to the district court’s determination, the
unclaimed property is part of the bankruptcy estate and subject to the Plan. 4



       4 The Treasurer spends a significant portion of its brief asserting that Linn waived
this argument because, allegedly, Linn did not raise the issue until its motion for rehearing
in the district court. That argument is belied both by Linn’s briefs and by the Treasurer’s
own briefs in the bankruptcy court. In response to Linn’s motion to dismiss the Treasurer’s
adversary complaint, for example, the Treasurer argued that judicial estoppel should prevent
Linn from claiming that the unclaimed property was part of the bankruptcy estate because
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                                       No. 18-40575
Second, Linn argues that the bankruptcy court correctly determined that the
Plan and ensuing Confirmation Order constitute a final judgment that the
Treasurer may not collaterally attack, and that the principles of res judicata
bar the Treasurer’s untimely adverse complaint. Third, Linn argues that the
Treasurer had no “right to payment” under Oklahoma’s unclaimed property
laws as of the date of the bankruptcy petition and, therefore, the Bankruptcy
Code barred the Treasurer’s claims. Finally, Linn argues that, to the extent
that the Bankruptcy Code and Oklahoma’s unclaimed property law are in
tension with one another, the Bankruptcy Code preempts Oklahoma state law.
       This court need not address the merits of Linn’s first, third, and fourth
arguments because Linn’s second argument is correct—the bankruptcy court’s
approval of the Plan and the ensuing confirmation order constitute a final
judgment that may not be collaterally attacked.
       In Travelers Indemnity Co. v. Bailey, the Supreme Court held that final
bankruptcy orders (i.e., orders that are affirmed upon direct review, or, as in
this case, not appealed or contested) become “res judicata to the parties and
those in privity with them, not only as to every matter which was offered and
received to sustain or defeat the claim or demand, but as to any other
admissible matter which might have been offered for that purpose.”
557 U.S. 137, 152, 129 S. Ct. 2195, 2205 (2009) (internal quotation marks and
citation omitted). The Court explicitly held that this principle applies “whether
or not [the orders were] proper exercises of bankruptcy court jurisdiction and
power” at the time they became final. Id.




“only after” the bankruptcy court entered the confirmation order “did [Linn] change positions
and claim that the Admitted Unclaimed Property is property of the estate.” Whatever the
history of Linn’s positions in the bankruptcy proceedings before the final order was entered,
it is clear that Linn has argued from the outset in this litigation that the unclaimed property
funds were property of the bankruptcy estate. Accordingly, the argument is not waived.
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                                 No. 18-40575
      Thus, when parties to a bankruptcy case have been given “a fair chance
to challenge [a] [b]ankruptcy [c]ourt’s subject-matter jurisdiction” or a
provision of a plan approved by the bankruptcy court during the case and fail
to do so, they cannot challenge the court’s order later through a collateral
attack. Id. at 153, 129 S. Ct. at 2206. This court has repeatedly recognized the
collateral bar established by Travelers. See, e.g., In re Davis Offshore, L.P.,
644 F.3d 259, 265 (5th Cir. 2011) (“Travelers held that a bankruptcy court’s
plan confirmation order cannot, after it becomes final, be collaterally attacked
by parties to the case or those in privity with them on grounds that it exceeded
the bankruptcy court’s jurisdiction.”).
      Here, the Plan submitted by Linn to claimants clearly stated that
unclaimed mineral royalties would be treated as unsecured debt, that upon the
Plan’s approval all remaining property would vest in Linn, and that no parties
could bring further claims against Linn after the Plan became final. Despite
ample opportunity provided by the Bankruptcy Code and the court’s
procedures, the Treasurer neither voted on the Plan nor contested its
treatment of the unclaimed property in question. That the Treasurer had a
fair chance to challenge the Plan’s disposition of unclaimed property in
Oklahoma is highlighted by the fact that a similarly-situated party, the Texas
Comptroller, did object to the Plan’s treatment of unclaimed property in Texas
and successfully excluded that property from the Plan.
      The Treasurer cites Pearlman v. Reliance Insurance Co., 371 U.S. 132,
135–36, 83 S. Ct. 232, 234 (1962), which held that the former Bankruptcy Act
does not permit bankruptcy trustees to distribute the property of other
persons. While that proposition is sound as a general principle, the Treasurer’s
reliance on Pearlman in this case is misplaced.       Pearlman evaluated the
legality of a bankruptcy plan on direct review; here, the Treasurer had an
opportunity to challenge the Plan in the normal course of proceedings (as the
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                                     No. 18-40575
Texas Comptroller did) but did not avail itself of that opportunity. Travelers,
decided decades after Pearlman, explicitly precludes collateral attacks on final
bankruptcy orders by parties to the proceedings “whether or not [they] were
proper exercises of bankruptcy court jurisdiction and power” in the first
instance. 5 557 U.S. at 152, 129 S. Ct. at 2205. To hold otherwise would upend
the need for finality in the judicial system, because “this sort of collateral
attack cannot be squared with res judicata and the practical necessity served
by that rule. It is just as important that there should be a place to end as that
there should be a place to begin litigation.” Id. at 154, 129 S. Ct. at 2206
(internal quotation marks and citation omitted).
      In short, the Treasurer asks this court to “tunnel back” into a completed
proceeding “for the purposes of reassessing prior jurisdiction de novo.” Id.
(internal quotation marks and citation omitted). We decline to do so. Because
the Treasurer failed to participate in the bankruptcy case and object to or
appeal the Plan’s disposition of the Oklahoma unclaimed property in the
normal course, its challenge is too late now. The bankruptcy court’s dismissal
of the Treasurer’s adversary complaint based on res judicata was correct
                                 IV. CONCLUSION
      For the foregoing reasons, this court REVERSES the district court’s
reversal of the judgment entered by the bankruptcy court. The bankruptcy
court’s decision to DISMISS the Treasurer’s complaint is reinstated.




      5  This court has no occasion to rule on the propriety of the bankruptcy plan to the
extent it purported to distribute unclaimed property that the debtor held as a trustee for
others, but as the treatment of the Texas unclaimed property rights demonstrates, there is
reason for skepticism.
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