January 23rd, 2024

US Court of Appeals for the Fifth Circuit Opinions
Briar Capital Working Fund v. Remmert

Docket: 22-20536
Opinion Date: January 22, 2024
Judge: James L. Dennis
Areas of Law: Bankruptcy

The United States Court of Appeals for the Fifth Circuit addressed an unprecedented issue in its circuit regarding the sale of preference claims arising under 11 U.S.C. § 547, in the context of Chapter 11 bankruptcy proceedings. The court was required to decide whether such claims could be sold and if the purchaser had the standing to pursue them.

The case was initiated by South Coast Supply Company (South Coast), which filed for Chapter 11 bankruptcy after experiencing financial difficulties. During the proceedings, the company borrowed funds from its then-CFO, Robert Remmert. South Coast later filed a lawsuit against Remmert to avoid more than $300,000 of allegedly preferential transfers made before the bankruptcy proceedings. The company's sole secured lender, Briar Capital Working Fund Capital, L.L.C. (Briar Capital), eventually acquired South Coast's interest in this pending preference action against Remmert.

Upon acquiring the lawsuit, Briar Capital was substituted as the assignee of South Coast. Remmert argued that Briar Capital lacked standing to prosecute the preference action. The district court agreed, holding that since a successful recovery would not benefit South Coast’s estate or its unsecured creditors, Briar Capital lacked standing to bring the preference claim against Remmert as a representative of the estate under 11 U.S.C. § 1123(b)(3)(B) of the Bankruptcy Code.

On appeal, the Fifth Circuit reversed the district court's decision. The court held that preference actions can be sold pursuant to 11 U.S.C. § 363(b)(1) because they are property of the estate under 11 U.S.C. §§ 541(a)(1) and (7). Furthermore, even if Briar Capital does not qualify as a representative of the estate, it has standing to pursue the preference claim as it validly purchased the claim outright. Therefore, the court remanded the case for further proceedings.

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