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In its recent opinion in Raymond James & Associates Inc. v. Jalbert (In re German Pellets Louisiana LLC), 23-30040, 2024 WL 339101 (5th Cir. Jan. 30, 2024), the Fifth Circuit held that a confirmed bankruptcy plan enjoined a party from asserting certain indemnification counterclaims against a plan trustee because the party did not file a proof of claim.


Louisiana Pellets (LAP) sold bonds to raise money to build a multimillion-dollar facility to refine raw wood into specialized fuel pellets. Investment bank Raymond James & Associates, Inc. (RJA) purchased some of these bonds and resold them to investors by using bond-offering memoranda with statements provided by LAP. As part of the offering, LAP agreed to indemnify RJA for any untrue or misleading statements within those offering memoranda.

Soon after the wood-processing facility was completed, LAP encountered financial problems and filed a Chapter 11 bankruptcy case.

LAP did not schedule RJA as a creditor and thus RJA did not receive formal notice of the bankruptcy. However, RJA was aware of and monitored the bankruptcy case.

The bankruptcy case culminated in a confirmed Chapter 11 Plan of Reorganization, which appointed a trustee to liquidate LAP’s assets, including by filing any lawsuits by or on behalf of LAP.

The bondholders suffered significant losses as a result of the bankruptcy. The bondholders could, however, still seek to recover their losses from RJA on a theory that the offering memoranda contained false or misleading statements.

Instead of suing RJA directly, however, the bondholders assigned their claims against RJA to the liquidating trust. The liquidating trustee then sued RJA, alleging violations of securities laws. RJA responded by filing a counterclaim against the liquidating trustee asserting recoupment and setoff based on LPA’s contractual indemnification obligation to RJA.

In response, the liquidation trustee filed an action in bankruptcy court asking for a declaratory judgment that (1) the confirmed plan specifically enjoined RJA’s assertion of setoff and recoupment; and (2) in any event, the liquidating trustee only assumed LAP’s assets, but not its liabilities/obligations. The bankruptcy and district courts both sided with the liquidating trustee, and RJA appealed to the Fifth Circuit.

Confirmed Plan Was Binding on RJA Because It Had Actual Knowledge of the Bankruptcy Proceeding

The first question the Fifth Circuit considered was whether RJA was bound by the terms of the confirmed plan, even though RJA was not scheduled as a creditor and was never provided formal notice of the bankruptcy case. The court held that it did.

The court first acknowledged that creditors who are not listed on the debtor’s schedule of creditors are generally not bound by a confirmed plan. However, the court cited an important caveat: “If an interested party has notice or actual knowledge of the bankruptcy, that party must “come forward and protect their enhanced rights or else lose their rights through the sweeping discharge of Chapter 11”  (see Raymond James & Associates Inc. v. Jalbert (In re German Pellets Louisiana LLC), 23-30040, 2024 WL 339101, AT *4 (5th Cir. Jan. 30, 2024) (quotations, citations, and alterations omitted)).

Here, since RJA had actual knowledge of LAP’s bankruptcy case, it had to protect its interests in the case and was bound by the confirmed plan.

Most importantly, the confirmed plan had an injunction provision that permanently enjoined “all persons who have held, currently hold or may hold a debt” from “asserting any setoff, right of subrogation, surcharge, or recoupment of any kind against any obligation due the Debtors, the Reorganized Debtors, the Purchaser, their successors, heirs, executors, administrators, or assigns or their respective properties.” Based on this injunction, RJA could not use its indemnification claims as a setoff or recoupment against the claims asserted by the liquidating trustee.

Notably, the Fifth Circuit doubled down on its holding and reasoned that even if RJA’s setoff or recoupment claims survived, the liquidating trust would not be the proper party against which to seek indemnity. This followed a well-established rule that when bankruptcy plans create liquidating trusts, only the debtor’s assets are transferred to the trust, and the trust is a separate entity from the debtor and its bankruptcy estate.


Creditors need to be vigilant to protect their claims and defenses in bankruptcy, even if those claims are contingent upon some future event. In re German Pellets Louisiana LLC is a reminder of this simple truth: Parties with potential interests at stake in a bankruptcy case should not just sit on the sidelines.