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IN RE: ENERGY FUTURE HOLDINGS CORP., et al,

Third Circuit creates a high standard for revoking a vested contract right.

- Rochelle Quick Take

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Case Type:
Business
Case Status:
Affirmed
Citation:
18-1109 (3rd Circuit, Sep 13,2018) Published
Tag(s):
Ruling:
Majority holds the bankruptcy court did not abuse its discretion to reconsider its prior order, entered a year earlier, approving a break-up fee under a merger agreement. The order approving the fee was interlocutory because allocation of the fee between the two estates was unresolved. Reconsideration motion was timely. Affirms BK court's use of Rule 59(e) criteria for altering a judgment to grant reconsideration.. Clear error of fact by Court on central issue when approving fee merits reconsideration. Dissent finds reconsideration an abuse of discretion because facts known but not appreciated
Procedural context:
On direct, expedited appeal from U.S. Bankruptcy Court for the District of Delaware
Facts:
The Debtors, Energy Future Holdings Corp. and Energy Future Intermediate Holding Corp,, entered into a Merger Agreement with NextEra Energy, Inc., whereby NextEra was to acquire the Debtors' 80% interest in Oncor, the largest electricity transmission and distribution system in Texas, for $9.5 billion.. Under the Agreement, NextEra would be entitled to a $275 million breakup fee as an allowed administrative expense unless NextEra terminated the agreement as a result of the denial of regulatory approval of the merger. The Bankruptcy Court approved the break-up fee. Regulatory approval was denied, and NextEra pursued appeals, rather than terminate the agreement. In order to pursue an alternative transaction, Debtors were forced to terminate the agreement, ostensibly triggering liability for $275 million break-up fee. Creditors of the debtor filed a motion for reconsideration of the order approving the break-up fee. The bankruptcy court granted reconsideration, finding that the approval order was interlocutory because it did not resolve all issues relating to the break-up fee, including its allocation between the two bankruptcy estates. It further held that, had it known that NextEra had no incentive to terminate the agreement because there was no deadline for obtaining regulatory approval of the merger and that the Debtors would be forced to terminate the agreement and incur the break-up fee, it could not have approved the break-up fee as an administrative expense because there was no actual benefit to the estate. NextEra appealed, arguing that granting reconsideration was an abuse of discretion because the motion, made nearly a year later, was not made in a timely manner and, as to the merits, there was no clear error of fact or law justifying reconsideration.
Judge(s):
Greenaway, Jr. (author for majority), Fuentes, and Rendell (dissenting)

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