James

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE FIRST BRANDS GROUP, LLC
EDWARD JAMES,
Appellant,
v.
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF FIRST
BRANDS GROUP, LLC, et al.,
Appellees.
QBE INSURANCE CORPORATION, et
al.,
Appellants,
v.
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF FIRST
BRANDS GROUP, LLC, et al.,
Appellees.
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BANKRUPTCY CASE NO. 25-90399
CIVIL ACTION NO. H-26-513
CIVIL ACTION NO. H-26-962
MEMORANDUM AND OPINION
The Official Committee of Unsecured Creditors of First Brands Group, LLC moves to
dismiss the Side A insurers’ appeal of the Bankruptcy Court’s D&O Order, (Docket Entry No. 44),
which held in part “that Debtors have an interest in the proceeds of the ABC Policy, and that
interest is property of the estate under § 541,” (Docket Entry No. 1-1 at 9). Based on a careful
review of the motion, the response, the reply, the record, and the applicable law, the motion to
dismiss, (Docket Entry No. 44), is denied. The reasons for this ruling are set out below.
United States District Court
Southern District of Texas
ENTERED
April 24, 2026
Nathan Ochsner, Clerk
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Before filing their bankruptcy petition, the debtors purchased two insurance policies: an
ABC Policy and a Side A Policy. 	(Docket Entry No. 1-1 at 216–218). 	Both policies are $100
million insurance towers, with a $10 million primary policy and nine layers of $10 million excess
policies. (See id.; see also Docket Entry No. 46 at 3–5 (depicting the tower)). The ABC Policy
includes three types of coverage: The A Side is for directors and officers when they are not
indemnified by the debtors; the B Side is for the debtors to the extent they indemnify directors and
officers for covered losses; and the C Side is for specified claims against the debtors directly. (See
Docket Entry No. 47-1; Docket Entry No. 1-1 at 216–218). The Side A Policy provides excess
insurance on the A Side of the ABC policy. (See Docket Entry No. 44 at 7–8 (citing Docket Entry
No. 29-25 (Side A Policy) § 1, Endorsement 9)). The Bankruptcy Court ruled that (1) the proceeds
of the ABC Policy are “property of the estate”; and (2) that “the proceeds of the Side A Policies
are not property of the estate.” (Docket Entry No. 1-1 at 9). As a result of the first ruling, the Side
A insurers must “drop down” in the tower and pay the costs of ongoing litigation against the
debtors’ directors and officers. 	(See Docket Entry No. 44 at 7–8; Docket Entry No. 46 at 5–6;
Docket Entry No. 46-7). The Side A insurers did not litigate these issues below, but they have
now appealed the D&O Order. (See Docket Entry No. 43).
The Committee moves to dismiss the appeal for two reasons: (1) the Side A insurers do not
have standing to appeal because they are not “aggrieved” by the D&O Order; and (2) the Side A
insurers cannot appeal because they did not “appear and object” to the relevant motion in the
Bankruptcy Court. (See generally Docket Entry No. 44). Neither argument warrants dismissing
the appeal.
First, the Side A Insurers are “aggrieved” by the Bankruptcy Court’s D&O Order.
“Standing to appeal a bankruptcy order is narrower than Article III standing.” 	In re Black Elk
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Energy Offshore Operations, LLC, 114 F.4th 343, 351 (5th Cir. 2024) (citing In re Technicool
Sys., Inc., 896 F.3d 382, 385 (5th Cir. 2018)). “Under the ‘person aggrieved’ test, only persons
directly, adversely, and financially impacted by a bankruptcy order may appeal it, and their
standing must be connected to the exact order being appealed.” Id. (cleaned up). The D&O Order
imposes a direct, adverse, and financial impact on the Side A insurers: after and because of the
D&O Order, they received an immediate demand to “drop down” into the ABC Policy’s “place”
and to “advance” and “reimburse defense fees” incurred by the insureds. (Docket Entry No. 46-7
at 2). Some Side A insurers have agreed to advance defense costs, and those policies are likely to
be exhausted quickly. 	(See also Docket Entry Nos. 46-8, 46-9). 	The D&O order imposes an
immediate “burden” on the Side A insurers’ “pocket.” Technicool Sys., 896 F.3d at 386.
The Committee responds that the Side A insurers’ alleged injury is indirect, suggesting that
the Fifth Circuit does not permit standing based on the “sequencing or priority” of payment
obligations. (Docket Entry No. 44 at 7). But a closer look at each of the cases the Committee cites
does not support such a hard-and-fast rule. 	To be sure, the Fifth Circuit has been skeptical of
alleged injuries based on a change in the sequencing or priority of the appellant’s claim or payment
obligation, but that is only because, in context, the change in sequencing or priority had little
financial significance. See, e.g., Rohm & Hass Texas, Inc. v. Ortiz Bros. Insulation, 32 F.3d 205,
211 (5th Cir. 1994) (a chain of possibilities—“greater potential liability should it ever file for
bankruptcy”—was too “attenuated” to support standing (emphasis added)); In re Coho Energy,
395 F.3d 198, 203 (5th Cir. 2004) (a change in payment priority did not confer standing because
there was only a “remote possibility” the fund would be depleted before the appellant was paid);
see also Black Elk, 114 F.4th at 351–52 (permitting a trustee to pursue a claim against the appellant
does not confer standing because there is only the potential for liability on that claim). By contrast,
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the liability here is more than potential. 	The Side A insurers have already received payment
demands—and will start exhausting policies—because of the D&O Order. (Docket Entry No. 46-
7 at 2; see also Docket Entry Nos. 46-8, 46-9).
The Fifth Circuit’s decision in Ross v. Marshall, 426 F.3d 745 (5th Cir. 2005), is instructive
on why the financial burden on the Side A insurers is sufficient to support standing to appeal. In
Ross, the Fifth Circuit held that a district court erred by denying an insurer’s motion to intervene
as of right to appeal a money judgment against its insured. 	See id. at 761. 	The Fifth Circuit
identified one of the relevant questions as whether “the insurer’s interest in minimizing its
insured’s liability is sufficiently direct to permit intervention as of right when the insurer defends
under a reservation of rights.” Id. at 758. The court noted that “an interest sufficient to justify
intervention under Rule 24(a) ‘must be direct, as opposed to remote or contingent.’” Id. at 758
(quoting Restor-A-Dent Dental Lab’ys, Inc. v. Certified Alloy Prods., Inc., 725 F.2d 871, 874 (2d
Cir. 1984)). The court concluded that the insurer had a sufficient interest for intervention because,
“[w]ithout question, an insurer has a financial stake in securing a favorable outcome for its insured
in a lawsuit alleging potentially covered claims.” Id. at 757. The court added that the financial
stake was sufficiently direct because “[a]ll that remains in order for Allstate to be fully liable for
the judgment up to its policy limits is a finding of coverage or liability in a suit on extra-contractual
damages.” Id. at 759.
Ross’s logic applies to the Side A insurers. The D&O Order is a “DIC Event” under the
Side A policies that requires the Side A insurers to “drop down” in the tower and cover defense
costs for covered claims. (Docket Entry No. 46 at 9; Docket Entry No. 46-7 at 2; see also Docket
Entry No. 44 at 7–8). 	Just as the judgment against the insured in Ross triggered the insurer’s
contractual obligation, the D&O Order triggered the Side A insurers’ contractual obligations. In
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Ross, the Fifth Circuit held that the insurer’s financial obligation was sufficiently direct to appeal
the money judgment despite the fact that the insurer’s obligation was contingent on a coverage
finding. 	Given this precedent, this court holds that the Side A insurers’ financial obligation is
sufficiently direct to appeal the D&O Order, despite the fact that the Side A insurers may or may
not dispute coverage in whole or in part. (See Docket Entry No. 46-8 at 4 (agreeing to coverage
under a reservation of rights)). The Side A insurers are “aggrieved” because the D&O Order forces
them to pay money now.
Second, the Side A insurers can appeal even though they did not “appear and object” to the
D&O Order below. This court has held that a claimant who does not appear and object to a court’s
confirmation order cannot appeal it. In re CJ Holding Co., 597 B.R. 597, 609 (S.D. Tex. 2019)
(Rosenthal, J.) (citing In re Palmaz Sci. Inc., 262 F. Supp. 3d 428, 437 (W.D. Tex. 2017)).
“Bankruptcy proceedings are complex both in the number of parties involved and the number of
issues at play.” Palmaz Sci., 262 F. Supp. 3d at 434. Efficient proceedings and final orders are
necessary to successful reorganizations. “Requiring potential claimants to take the simple step of
filing a proof of claim or lodging an objection before the bankruptcy court” furthers those goals.
Id. 	Allowing “dilatory late-comers or, worse yet, those strategically withholding claims and
objections with the goal of asserting them only on appeal” would substantially undermine them.
Id. If parties receive notice that complies with due process, courts generally should not allow them
to appeal rulings they did not contest below. See CJ Holding, 597 B.R. at 609–10; Palmaz Sci.,
262 F. Supp. 3d at 436–37.
But this case presents a warranted exception. The Side A insurers are not appealing a fresh
issue that was not litigated below. They are in effect joining Edward James’s appeal: the Side A
insurers plan to file “a single joint Opening Brief” with James, and they agree that they are bound,
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for preservation purposes, by James’s “underlying Motion for Relief from the Automatic Stay.”
(Docket Entry No. 46 at 12). The Side A insurers are again similar to the insurer in Ross, who
intervened to appeal, assumed the insured’s legal position, and did not upset “the orderly processes
of the court.” Ross, 426 F.3d at 755; see ODonnell v. Harris County, 808 F. Supp. 3d 738, 761
(S.D. Tex. 2025) (explaining that intervention is minimally prejudicial when the intervenor
“accept[s] the . . . the law of the case and s[eeks] to protect its interests from then on”).
The difficulty here is that James is appealing, so the Side A insurers’ appeal may be
duplicative and unnecessary. 	See Sierra Club v. Espy, 18 F.3d 1202, 1206 (5th Cir. 1994)
(discouraging premature intervention “that wastes judicial resource”); Ross, 426 F.3d at 755 &
n.39 (same). But this factor is not dispositive. The appellants have already committed to filing a
joint opening brief, (Docket Entry No. 46 at 12), and the parties have already agreed to an efficient
schedule for litigating this appeal, (Docket Entry No. 43). 	There is minimal prejudice to the
Committee or to the bankruptcy proceeding, and the court is prepared to promptly address
scheduling or briefing issues as they arise. Enforcing a prudential appear-and-object requirement
does not appear prudent in this case.
For these reasons, the motion to dismiss the Side A insurers’ appeal, (Docket Entry No.
44), is denied.
SIGNED on April 24, 2026, at Houston, Texas.
________________________________
Lee H. Rosenthal
Senior United States District Judge
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