Action Alleging Violation of Bankruptcy Court Order - U.S. Fifth Circuit
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Action Alleging Violation of Bankruptcy Court Order

In re: Tex. Comm. En'gy., No. 08-40890, involved an action claiming that defendant drew down a letter of credit in violation of a bankruptcy court order and confirmed reorganization plan that allegedly prevented defendant from taking that action to satisfy pre-confirmation debts.  The court of appeals reversed the judgment for plaintiffs, holding that 1) a debt owed to defendant was neither an "Invoice" nor an "obligation represented by those Invoices" under the district court's injunction, the order did not govern defendant's action regarding the debt; 2) the district court's order still had effect as applied to the actual pre-petition invoices, and thus the court of appeals' interpretation of the order did not render it superfluous; and 3) the plan did not state that the $1.3 million letter of credit at issue must remain the sole and exclusive security for defendant's claim.

As the court wrote:  "Leo Leonard May and Texas Commercial Energy ("TCE") sued the Electric Reliability Council of Texas ("ERCOT") for drawing down a letter of credit in violation of a bankruptcy court order and confirmed reorganization plan that allegedly prevented ERCOT from taking that action to satisfy pre-confirmation debts. The final judgment awarded contract damages and attorneys fees to the Appellees. ERCOT now appeals, asserting that it had the right to draw down TCE's Trustee and ERCOT settled pending appeal the letter of credit to pay TCE's post-confirmation debts. We agree, and accordingly REVERSE and RENDER the judgment in favor of May."

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