A Chapter 11 bankruptcy action provides a debtor with numerous protections from creditors. But sometimes getting that protection can be a challenge, as Dallas lawyer Clayton Bailey found out while defending Pilgrim’s Pride Corp. from more than 100 individual creditors’ claims for a collective $50 million in alleged contract obligations.

The appeal to the 5th U.S. Circuit Court of Appeals was particularly challenging because it involved the decisions of three different trial court judges related to 107 individual claims or suits filed against Pilgrim’s Pride, Bailey says.

The background to the 5th Circuit’s Jan 31 opinion in Clinton Growers v. Pilgrim’s Pride Corp. (In re Pilgrim’s Pride Corp.) is as follows.

Pilgrim’s Pride Corp. (PPC) contracted with appellants (who the court collectively calls the "growers") to raise chickens. Citing a downturn in the poultry industry, PPC terminated its contracts with the growers and filed for Chapter 11 bankruptcy. The growers filed claims against PPC seeking promissory estoppel relief, alleging that PPC’s oral promises of a long-term relationship induced them to invest in chicken houses, according to the opinion.

The bankruptcy case unfolded. Meanwhile, in a related case, U.S. District Judge Terry Means of Fort Worth rejected similar estoppel claims brought by other growers against PPC, observing that estoppel "applies only where no contract on the subject matter exists."

PPC later filed multiple summary judgment motions in Clinton Growers. U.S. Bankruptcy Judge D. Michael Lynn of Fort Worth entered summary judgment for PPC, finding that Means’ decision was binding under the law-of-the-case doctrine. U.S. District Judge John McBryde of Fort Worth affirmed Lynn’s ruling, and the growers appealed McBryde’s decision to the 5th Circuit.

The 5th Circuit affirmed the lower court rulings, by finding that "the contracts between PPC and the Growers bar PPC’s oral promises because the contracts address the same subject matter as the Growers’ claims," wrote 5th Circuit Judge Stephen Higginson in an opinion joined by Judge Leslie Southwick and Senior Judge Harold DeMoss.

Bailey, a partner in Baker & McKenzie, is pleased with the 5th Circuit’s decision.

"When you’re dealing with that many claims, it takes an entire team to shepherd this through the bankruptcy court," Bailey says. Lynn resolved all of those claims in a matter of nine months, he says, noting that Pilgrim’s Pride emerged from Chapter 11 bankruptcy in December of 2009.

"That’s really important when you’re in bankruptcy court, because your client is trying to restructure itself. To get a ruling quickly is vital," Bailey says.

Bruce McKee, a partner in Birmingham, Ala.’s Hare Wynn Newell & Newton, represents the appellants in the case. He says his clients will not appeal the decision.

"Although we respectfully disagree with the court’s interpretation, we have no choice but to respect and live with that decision," McKee says.

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