Kreit v. Quinn

Case: 21-20067 Document: 00516199696 Page: 1 Date Filed: 02/11/2022

United States Court of Appeals

for the Fifth Circuit United States Court of Appeals

Fifth Circuit

FILED

February 11, 2022

No. 21-20067 Lyle W. Cayce

Clerk

In re Cleveland Imaging and Surgical Hospital, L.L.C.,

Debtor.

Camil Kreit; Samir Kreit; Fadi Ghanem,

Appellants,

versus

Christopher L. Quinn, the CI Litigation Trustee,

Appellee.

Appeal from the United States District Court

for the Southern District of Texas

No. 4:19-CV-3069

Before Higginbotham, Smith, and Ho, Circuit Judges.

Jerry E. Smith, Circuit Judge:

This case arises from the bankruptcy of Cleveland Imaging and Surgi-

cal Hospital, L.L.C. (“CISH”), which, starting in 2002, owned and operated

a four-bed hospital in Cleveland, Texas. Camil Kreit, Samir Kreit, and Fadi

Ghanem are doctors who invested in CISH and served on its board.

In 2014, CISH filed for bankruptcy. Many of its assets were sold, but

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No. 21-20067

its causes of action were placed in trust so they could be liquidated on behalf

of its creditors. For that purpose, Christopher Quinn was appointed trustee.

In 2019, however, the doctors filed an adversary proceeding in which

they asserted causes of action that the bankruptcy court had placed in trust

for CISH’s creditors. That led the bankruptcy court to sanction them, con-

cluding that by attempting to seize control of trust property, the doctors had

knowingly violated its order confirming the liquidation plan. The doctors

appealed, but those sanctions were largely upheld by the district court. The

doctors again appeal. Because every issue they raise is meritless, we affirm.

I.

A.

Understanding the sanctions order at issue here requires a bit of back-

ground on the CISH bankruptcy. In 2012, the doctors sued CISH for breach

of contract in state court. When one of CISH’s creditors learned that the

hospital had ceased operations on account of the suit, the creditor success-

fully petitioned a state court to appoint a receiver, who then put CISH into

bankruptcy in September 2014.

In subsequent bankruptcy proceedings, the doctors competed with

one of their rivals on the CISH board to purchase the hospital from CISH’s

estate. Ultimately, the bankruptcy court approved a sale of the hospital to

that rival in August 2015. The doctors objected but did not appeal.

Two months later, however, Camil Kreit wrote to numerous govern-

mental entities 1 to allege that the receiver and the doctors’ rival had rigged

the asset sale and taken actions to injure CISH. In those communications,

1

In all, Kreit contacted the U.S. Trustee’s Office, the local U.S. Attorney’s Office,

the Texas Attorney General’s Office, the U.S. Department of Justice, and the Federal

Trade Commission.

2

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Kreit identified himself as one of CISH’s managers, raised various causes of

action on its behalf, and requested any available administrative remedies.

When the bankruptcy court learned of Kreit’s actions, it sanctioned him. It

reasoned that Kreit had sought to assert control over causes of action that

properly belonged to CISH and that that violated the automatic stay, which

prohibits “any act . . . to exercise control over property of the estate.”

11 U.S.C. § 362(a)(3). Kreit appealed, but we upheld those sanctions. Kreit

v. Quinn (In re Cleveland Imaging & Surgical Hosp., L.L.C.), 690 F. App’x

283, 287 (5th Cir. 2017) (per curiam). 2

Meanwhile, in June 2016, the bankruptcy court confirmed a liquida-

tion plan for CISH. As before, the doctors objected but did not appeal. As

part of that plan, CISH’s remaining assets—including its causes of action—

were placed into the CI Litigation Trust. Quinn was appointed trustee to

pursue those claims and liquidate them on behalf of the creditors.

Two aspects of the plan are notable. First, it kept the automatic stay

in place for the benefit of the trust. Second, it provided that the trust would

terminate automatically on December 31, 2018.

B.

That brings us to this appeal. In June 2019, the doctors filed an adver-

sary proceeding in the bankruptcy court against CISH’s estate and another

one of their rivals. They alleged that their rival had defrauded CISH before

the bankruptcy filing and that the receiver 3 had breached his fiduciary duties

by failing adequately to pursue claims that could serve to recover assets for

2

Kreit’s petition for certiorari was denied. See Kreit v. Quinn, 138 S. Ct. 429

(2017).

3

Although the doctors did not sue the receiver, their attorney later admitted that

was a mistake.

3

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CISH. The bankruptcy court responded by ordering the doctors to show

cause why they should not be sanctioned for violating the automatic stay kept

in place by its confirmation order.

After holding two hearings, the bankruptcy court decided to sanction

the doctors using its inherent power under Section 105 of the Bankruptcy

Code. 4 It concluded that the doctors had brought causes of action that prop-

erly belonged to the trust. Accordingly, the bankruptcy court determined

that they had attempted to assert control over trust property—thereby violat-

ing the automatic stay kept in place by its confirmation order. As required to

exercise its inherent authority, 5 the court also found, by clear and convincing

evidence, that the doctors had acted in bad faith. That finding was driven by

its conclusion that the doctors had knowingly violated its confirmation

order. 6

The bankruptcy court then imposed two categories of sanctions.

First, it ordered the doctors to pay for the costs that the trust had incurred as

a result of their adversary—namely, the fees that Quinn and his attorneys had

charged it for responding to the adversary and litigating the show-cause

motion. 7 Second, it enjoined the doctors from violating the automatic stay in

4

That section gives bankruptcy courts the power to “issue any order, process, or

judgment that is necessary or appropriate to carry out the provisions” of the Bankruptcy

Code. 11 U.S.C. § 105(a).

5

Cadle Co. v. Moore (In re Moore), 739 F.3d 724, 729–30 (5th Cir. 2014).

6

In particular, the bankruptcy court emphasized that the doctors knew about the

confirmation order and had been rejected by multiple attorneys before finding one who was

willing to file their complaint. It also noted that it had previously sanctioned Camil Kreit

for engaging in similar conduct.

7

On the bankruptcy court’s instructions, Quinn had moved for the court to use its

inherent authority to order the doctors to show cause why they should not be sanctioned.

He then prosecuted the show-cause motion. Under the confirmation order and trust agree-

ment, the trust was obligated to pay the fees incurred by Quinn and his attorneys in defend-

4

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the future. That injunction was to be enforced with future sanctions of

$100,000 per individual per violation. Then, in a separate order, the bank-

ruptcy court dismissed the doctors’ adversary proceeding with prejudice.

The doctors paid the monetary sanctions to Quinn, who accepted

them on behalf of the trust. 8 Then, they appealed the sanctions order to the

district court, which affirmed in part and vacated in part. As relevant here,

it affirmed the monetary sanctions because it agreed with the bankruptcy

court’s determination that the doctors had violated the automatic stay in bad

faith. But it vacated the “$100,000 sanction for future violations” as “puni-

tive and beyond the bankruptcy court’s authority.” 9

Once again, the doctors appealed. Quinn, however, did not cross-

appeal the vacatur of the punitive sanctions.

II.

“We review ‘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.’” 10 That means we usually review the bankruptcy court’s

ing its interests.

8

The doctors paid the sanctions to Quinn, not the trust itself, because a trust is not

a “separate legal entity” under Texas law. Hollis v. Lynch, 827 F.3d 436, 443 (5th Cir.

2016) (quoting Ray Malooly Tr. v. Juhl, 186 S.W.3d 568, 570 (Tex. 2006)). Instead, a trust

is merely a “fiduciary relationship governing the trustee with respect to the trust prop-

erty.” Id. (quoting Juhl, 186 S.W.3d at 570). As a result, it is the trustee who has possession

of a trust’s property. See id. (“A trust cannot possess anything as it is not an entity under

Texas law.”).

9

Bankruptcy courts lack the power to impose sanctions so punitive that they

amount to a finding of criminal contempt. Griffith v. Oles (In re Hipp, Inc.), 895 F.2d 1503,

1509 (5th Cir. 1990).

10

In re Lopez, 897 F.3d 663, 668 (5th Cir. 2018) (quoting Endeavor Energy Res., L.P.

v. Heritage Consol., L.L.C. (In re Heritage Consol., L.L.C.), 765 F.3d 507, 510 (5th Cir.

5

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legal conclusions de novo and its factual findings for clear error. Edwards Fam.

P’ship v. Johnson (In re Cmty. Home Fin. Servs., Inc.), 990 F.3d 422, 426 (5th

Cir. 2021). But when the bankruptcy court sanctions a party using its inher-

ent authority, our review is closer. We uphold those sanctions only if (1) the

bankruptcy court finds that the party acted in bad faith or willfully abused the

judicial process and (2) its finding is supported by clear and convincing evi-

dence. In re Moore, 739 F.3d at 729–30.

III.

Before we can get to the merits, we must confirm we have jurisdiction.

Rivero v. Fid. Invs., Inc., 1 F.4th 340, 343 (5th Cir. 2021). It turns out that we

have jurisdiction over some—but not all—of the doctors’ claims.

A.

We start with the dismissal of the doctors’ adversary proceeding. On

appeal, the doctors say that the bankruptcy court was wrong to dismiss their

adversary proceeding; they ask us to reinstate it. But they never filed a notice

of appeal that properly embraced that issue under the bankruptcy rules, and

that means we don’t have jurisdiction. Dorsey v. U.S. Dep’t of Educ. (In re

Dorsey), 870 F.3d 359, 363 (5th Cir. 2017).

The bankruptcy court dismissed the doctors’ adversary and sanc-

tioned them in two separate orders. It entered the dismissal order on the

docket for the doctors’ adversary proceeding, but it entered the sanctions

order on the docket for the underlying Cleveland Imaging bankruptcy pro-

ceeding. In response, the doctors filed only a single notice of appeal on the

Cleveland Imaging docket. That notice designated only the sanctions order as

the subject of the appeal. And as an exhibit, the doctors attached only the

2014)).

6

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sanctions order, not the dismissal order. There are two reasons why that

notice of appeal didn’t encompass the dismissal order and, accordingly, why

we don’t have jurisdiction.

First, a “notice of appeal in [a] main bankruptcy proceeding” cannot

“serve as a notice of appeal in [a related] adversary proceeding.” Dorsey,

870 F.3d at 362. Instead, the “main bankruptcy case and adversary proceed-

ing must be treated as distinct for the purpose of appeal.” Id. at 363 (quoting

Dietrich v. Tiernan (In re Dietrich), 490 F. App’x 802, 804 (6th Cir. 2012)).

After all, “adversary proceedings are discrete judicial units.” Id. Given that

the doctors didn’t file a notice of appeal on the adversary docket, their notice

didn’t embrace the dismissal of their adversary proceeding. Thus, we lack

jurisdiction.

Second, the doctors’ notice of appeal did not comply with the require-

ments of the bankruptcy rules for appealing the adversary proceeding. Notic-

ing an appeal from a bankruptcy court is “more demanding” than noticing

an appeal from a district court. Fadayiro v. Ameriquest Mortg. Co., 371 F.3d

920, 922 (7th Cir. 2004). 11 Unlike the latter, the former requires that a notice

of appeal “be accompanied by the judgment, order, or decree, or the part of

it, being appealed.” Fed. R. Bankr. P. 8003(a)(3)(B). And the doctors

included only the sanctions order, not the dismissal order, with their notice

of appeal. That means their notice failed to comply with Rule 8003, so we

lack jurisdiction.

B.

Next, the punitive sanctions. The doctors once again press their claim

that the forward-looking sanctions were punitive and beyond the authority of

11

That’s likely because a single bankruptcy case can involve many parties and many

adjacent adversary proceedings. Fadayiro, 371 F.3d at 922.

7

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the bankruptcy court. But they won on this issue before the district court, and

Quinn did not cross-appeal. “[A] prevailing party generally may not appeal

a judgment in its favor.” 12 Such a party may do so when it continues to suffer

an injury from the judgment. See Camreta v. Greene, 563 U.S. 692, 702–03

(2011). But the doctors have already received everything they wanted with

respect to the punitive sanctions; they fail to identify any additional injury

they have suffered from the district court’s judgment. Thus, they don’t have

an injury-in-fact, and we don’t have jurisdiction. See id. at 701–02.

C.

We end our discussion of jurisdiction with a relatively unusual issue.

Recall that the terms of the trust agreement stated it would terminate no later

than December 31, 2018—six months before the doctors filed their adversary

proceeding and eight months before Quinn and his attorneys accepted the

sanctions award on behalf of the trust. It appears that the doctors figured this

out just after briefing had been completed. Several weeks later, they filed an

emergency motion to strike Quinn’s filings, set aside his actions since 2018,

and vacate the district court’s order affirming the sanctions order. They

claimed that Quinn didn’t have standing to defend the sanctions order

because he was no longer a trustee and therefore had no interest in preserving

it. In supplemental briefing, they also claimed that Quinn didn’t have stand-

ing to file or prosecute the show-cause motion despite the bankruptcy court’s

request for him to do so.

Making matters more complicated, the doctors filed a similar motion

on the underlying bankruptcy court docket around the same time. Then,

before we heard oral argument, the bankruptcy court ruled on that motion.

12

Zente v. Credit Mgmt., L.P., 789 F.3d 601, 603–04 (5th Cir. 2015) (quoting Ward

v. Santa Fe Indep. Sch. Dist., 393 F.3d 599, 603 (5th Cir. 2004)).

8

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It agreed with the doctors that the trust had “terminated as a matter of law”

in 2018. And although Quinn continues to possess the trust assets, 13 the

bankruptcy court held that the terms of the trust prohibit him from exercising

wind-up powers after its termination. Those powers would have let Quinn

continue to exercise his powers as trustee for a reasonable time until he dis-

tributed the trust assets to beneficiaries. Tex. Prop. Code § 112.052.

The upshot of all this is that the doctors hope it will lead us to vacate

the sanctions order and dismiss this appeal for lack of jurisdiction. After all,

standing implicates our subject-matter jurisdiction. Ortiz v. Am. Airlines,

Inc., 5 F.4th 622, 627 (5th Cir. 2021). And though it would have been prefer-

able for the doctors to raise these issues before, we have an obligation to

assure ourselves of our jurisdiction. Rivero, 1 F.4th at 343–44. Even so, we

conclude that the bankruptcy court had jurisdiction to enter the sanctions

order and that we and the district court have jurisdiction to hear this appeal.

Let’s start with the sanctions order. The bankruptcy court entered it

under its inherent authority under 11 U.S.C. § 105(a), 14 which gives bank-

ruptcy courts the power to issue civil contempt orders. See Placid Refin. Co.

v. Terrebonne Fuel & Lube, Inc. (In re Terrebonne Fuel & Lube, Inc.), 108 F.3d

609, 613 (5th Cir. 1997) (per curiam). Because the sanctions order sought to

“compensate another party for the contemnor’s violation” of a court order,

it qualifies as such an order. Id. That matters because “an order of civil

contempt is considered part of the underlying case”—here, the Cleveland

Imaging bankruptcy case. Garrett v. Coventry II DDR/Trademark Montgomery

Farm, L.P. (In re White-Robinson), 777 F.3d 792, 795 (5th Cir. 2015) (per

13

They are in a bank account he controls.

14

In relevant part, Section 105(a) provides that bankruptcy courts may “sua

sponte, tak[e] any action . . . necessary or appropriate to enforce or implement court orders

or rules, or to prevent an abuse of process.”

9

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curiam). Therefore, because the bankruptcy court had jurisdiction over the

Cleveland Imaging bankruptcy case, it had jurisdiction to enter the sanctions

order, too.

Likewise, we have (and the district court had) jurisdiction to consider

the doctors’ appeal. The doctors say that Quinn doesn’t have standing to

defend their appeal. The problem with that theory is that standing isn’t the

right doctrine by which to articulate their objection to Quinn’s status as a

party. A litigant must be able to show standing when “seek[ing] to initiate or

continue proceedings in federal court.” 15 Quinn is seeking to defend an appeal

initiated by the doctors. Thus, for this case to be capable of resolution under

Article III, he doesn’t need to show he would have standing.

Nonetheless, Article III requires an “opposing party” to have “an

‘ongoing interest in the dispute’ . . . that is sufficient to establish ‘concrete

adverseness’” between the litigants. Bond, 564 U.S. at 217 (quoting Camreta,

563 U.S. at 701). Normally, this requirement is hardly worth mentioning.

After all, a litigant unquestionably has an interest in a case when there is

“relief being sought at its expense” by another. Id. And standing’s tracea-

bility and redressability requirements will typically guarantee that that’s the

case. Hence, nothing is usually lost when courts say that Article III’s

requirement of a “genuine, live dispute between adverse parties” is

“implement[ed]” through the “doctrine of standing.” Carney v. Adams, 141

S. Ct. 493, 498 (2020).

Here, the doctors have standing to appeal the sanctions order. Their

injury—being forced to pay over $40,000 in sanctions—is a “traditional

15

Bond v. United States, 564 U.S. 211, 217 (2011) (emphasis added); see also Va.

House of Delegates v. Bethune-Hill, 139 S. Ct. 1945, 1950 (2019) (noting that standing is

required for those “invoking the power of a federal court” (emphasis added) (quoting Hol-

lingsworth v. Perry, 570 U.S. 693, 704 (2013))).

10

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tangible harm[ ]” that meets the injury-in-fact requirements of Article III.

TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2204 (2021). That injury is

“fairly traceable” to Quinn’s conduct in accepting the sanctions award on

behalf of the trust. Carney, 141 S. Ct. at 498 (quoting Hollingsworth, 570 U.S.

at 704). And this injury could be “redressed by judicial relief.” TransUnion,

141 S. Ct. at 2203. If the bankruptcy court wrongly sanctioned the doctors,

this court could order the sanctions returned from their possessor (Quinn) to

their rightful owner (the doctors)

Even so, sometimes an opposing party lacks such an interest even

when an initiating party can show it has standing. Look no further than Cam-

reta, 563 U.S. at 701–03, in which the Court concluded that a child protective

service worker who had received qualified immunity nonetheless had stand-

ing to appeal. The Ninth Circuit held that he had violated the Fourth

Amendment by interviewing a minor at school without a warrant or her par-

ents’ consent; it then concluded that he was entitled to qualified immunity

because that right was not “clearly established.” Id. at 699–700. That in-

jured the worker by establishing an “adverse constitutional ruling” that

required him to “change the way he performs his duties or risk a meritorious

damages action.” Id. at 703.

Nonetheless, the Supreme Court ultimately concluded that it didn’t

have jurisdiction. Why? Because for a federal court to exercise jurisdiction

under Article III “the opposing party also must have an ongoing interest in

the dispute.” Id. at 701 (emphasis added). In Camreta, the minor had moved

to Florida and was “only months away from her 18th birthday” and “high

school graduation.” Id. at 711. As a result, she no longer had an interest in

preserving the Ninth Circuit’s constitutional holding. Id. That lack of “a

stake in the outcome” meant that there was no longer a live controversy for

the Court to resolve. Id. at 710–11.

11

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Quinn, however, still has a “stake in the outcome” that is adequate to

confer our jurisdiction despite the termination of the trust. True, Quinn no

longer has legal ownership of the trust assets. Nonetheless, as even the doc-

tors recognized at oral argument, the assets are still in a bank account that he

controls.

Quinn has a cognizable interest in continuing to possess the assets. On

termination, a former trustee like Quinn has a duty to return the trust prop-

erty to the beneficiaries of the trust. 16 And a former trustee’s fiduciary duty

with respect to that property doesn’t end until the property has been distrib-

uted to beneficiaries. 76 Am. Jur. 2d Trusts § 335, Westlaw (database up-

dated Nov. 2021). Thus, even though Quinn may lack wind-up powers and

doesn’t have legal ownership of the property, he has an interest in defending

his continued possession of the trust assets so he can fulfill his fiduciary

duties and return the property to the trust beneficiaries. 17 That’s enough to

give him a meaningful interest in this case, so we have jurisdiction.

IV.

That brings us finally to the merits. The doctors’ remaining claims

have none.

A.

The doctors say that the bankruptcy court erred in finding they had

violated its confirmation order by filing their adversary proceeding. That

court reached that conclusion because its confirmation order preserved the

16

Restatement (Third) of Trusts § 76 (Am. L. Inst.), Westlaw (database

updated Oct. 2021); cf. Tex. Prop. Code § 114.001(a) (“The trustee is accountable to

a beneficiary for the trust property . . . .”).

17

In its amended order on termination of the trust, the bankruptcy court indicated

that Quinn may request its guidance for distributing the trust property, but he does not yet

appear to have done so.

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automatic stay, which prevents “any act . . . to exercise control over property

of the estate.” 11 U.S.C. § 362(a)(3). In the court’s view, the doctors’ filing

violated that provision by attempting to “tak[e] control over assets of the

estate which [had] bec[o]me assets of the trust.” The doctors dispute this

holding on two grounds, but neither is persuasive.

First, the doctors claim the automatic stay permitted adversary pro-

ceedings like theirs to be filed. They highlight language from Campbell v.

Countrywide Home Loans, Inc., 545 F.3d 348, 356 (5th Cir. 2008), that they

insist reveals that filing an adversary proceeding does not violate the auto-

matic stay. 18 But as we later clarified, “[w]hile the language in Campbell

could suggest a broad rule, the holding was narrow: the automatic stay does

not bar the filing of proofs of claims in the debtor’s bankruptcy case.” Cowin

v. Countrywide Home Loans, Inc. (In re Cowin), 864 F.3d 344, 352 (5th Cir.

2017) (emphasis added). That’s because the Bankruptcy Code explicitly

permits such actions to be filed against a debtor. See 11 U.S.C. § 501(a).

The doctors haven’t cited a comparable textual exception for their

adversary proceeding, which—unlike a proof of claim—undermined the

“orderly liquidation [and] administration of the estate.” Cowin, 864 F.3d

at 352 (quoting Prewitt v. N. Coast Vill., Ltd. (In re N. Coast Vill., Ltd.),

135 B.R. 641, 643 (9th Cir. BAP 1992)). Campbell thus doesn’t show that the

bankruptcy court erred in concluding that the doctors violated its confirma-

tion order.

Second, the doctors maintain that their adversary proceeding was

properly filed because they had “derivative standing” to litigate the trust’s

18

The “automatic stay serves to protect the bankruptcy estate from actions taken

by creditors outside the bankruptcy court forum, not legal actions taken within the bank-

ruptcy court.” Campbell, 545 F.3d at 356 (quoting In re Sammon, 253 B.R. 672, 681 (Bankr.

D.S.C. 2000)).

13

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claims on its behalf. Based on In re Louisiana World Exposition, Inc., 832 F.2d

1391, 1397–98 (5th Cir. 1987), they say they had the power to assert the trust’s

claims because Quinn had “refuse[d] or [was] unable to act in the best

interest[s] of creditors.” That claim faces two problems.

The first is that the doctors forfeited it. They didn’t include it in their

statement of issues on appeal or press it before the district court. 19 The doc-

tors were required to do both to preserve that claim. 20 Since they didn’t, that

claim has been forfeited.

The second problem is that the doctors’ theory is wrong. Louisiana

World Exposition, 832 F.2d at 1397, permits only creditors’ committees to assert

derivative standing on behalf of a debtor. The doctors are no such commit-

tee. What’s more, that decision “generally” requires “that the debtor-in-

possession ha[s] refused unjustifiably to pursue the claim” and “that the

committee first receive leave to sue from the bankruptcy court” before filing.

Id. The doctors never demanded that Quinn pursue their claims and never

received permission from the bankruptcy court to file their adversary. Thus,

notwithstanding Louisiana World Exposition, the doctors violated the confir-

mation order by filing their adversary.

B.

The doctors make their last stand on the bad-faith requirement. Recall

that a bankruptcy court may sanction litigants only if it finds, by clear and

convincing evidence, that they acted in bad faith or willfully abused the judi-

19

Instead, they took the opposite position: that their claims were direct, not

derivative.

20

See Frazin v. Haynes & Boone, L.L.P. (In re Frazin), 732 F.3d 313, 324 (5th Cir.

2013); Smith v. H.D. Smith Wholesale Drug Co. (In re McCombs), 659 F.3d 503, 510 (5th Cir.

2011).

14

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cial process. In re Moore, 739 F.3d at 729–30. The bankruptcy court found

that the doctors were acting in bad faith because they had knowingly violated

the confirmation order. The doctors say this determination was erroneous.

We disagree.

Clear and convincing evidence supports the bankruptcy court’s find-

ing that the doctors knowingly violated its confirmation order. The doctors

were unquestionably aware of the confirmation order; they had even objected

to it when the bankruptcy court was deciding whether to enter it. When

Camil Kreit violated that order by seeking to assert control over a different

fraud claim that belonged to the trust, the bankruptcy court sanctioned him.

Despite being on notice that the fraud claims belonged to the trust, the doc-

tors shopped around to find an attorney who would file their suit. After they

succeeded in finding one, each of them reviewed the draft complaint and

approved it before the lawyer filed it. And Kreit ultimately admitted that he

knew that complaint incorporated arguments that had been rejected by this

court. This evidence leads us to the “firm” conclusion that the doctors knew

that the confirmation order barred them from filing this adversary proceed-

ing. Crowe v. Smith, 261 F.3d 558, 563 (5th Cir. 2001). That means they did

so in bad faith. The bankruptcy court’s sanctions order was justified.

The doctors contest that determination on two grounds. 21 In their

view, they “were left with no choice because the fiduciary refused to protect

and prosecute the claims of the estate,” and their actions “were good faith

efforts to preserve the claims of the estate in the only manner left to them

under the framework of the Bankruptcy Code.” Once again, both of those

21

The doctors characterize one of their arguments as a due process challenge, but

it is better understood as a challenge to the bankruptcy court’s bad-faith finding, which was

a necessary prerequisite for it to sanction the doctors using its inherent authority. See

Moore, 739 F.3d at 730.

15

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arguments fail.

The first is based on a blatant mischaracterization of the record. The

doctors never asked Quinn to pursue the claims against their rival, so Quinn

could never have “refused” to do so. The second fails for the same reason.

The doctors could have helped to preserve the claims of the estate by notify-

ing Quinn and asking him to pursue them. Instead, in the words of the bank-

ruptcy court, “they just hauled off and filed the suit seeking relief that

belongs” to the trust. Hence, the doctors haven’t cast doubt on the bank-

ruptcy court’s conclusion that they were acting in bad faith when they filed

their adversary. The factual findings stand.

AFFIRMED.

16