Samson Energy Resources Co v. Semcrude, L.P., et al. (In re Semcrude, L.P.)

Summarized by Cassandra Porter , Cognizant Technology Solutions
12 years 6 months ago

Citation:

No. 12-2736

Tag(s):

Ruling:

Third Circuit reversed District Court's dismissal of appeal on grounds of "equitable mootness" and remanded case back to District Court for hearing on the merits of the appeal

Procedural context:

Appeal from opinion of the United States District Court for the District of Delaware, see In re SemCrude, L.P., No. 09 Civ. 994, 2012 WL 1836353 (D. Del. May 21, 2012) which held Appellants' appeal was "equitably moot"

Facts:

SemCrude, L.P. and related entities (collectively, the “Debtors” or, following reorganization, the “Reorganized Debtors”) filed voluntary petitions (“Petitions”) under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq (the “Bankruptcy Code”) in July 2008 (“Petition Date”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). Luke Oil Company, C & S Oil/Cross Properties, Inc., Wayne Thomas Oil and Gas and William R. Earnhardt, Co. (collectively, the “Appellants”) are Oklahoma producers that supplied oil and gas to the Debtors on credit. Shortly after the Petitions were filed, Appellants filed a complaint contending that they retained property and statutory lien rights in the commodities sold to the Debtors prior to the Petition Date. Numerous producers (the “Producers”), like Appellants, asserted that they had supplied oil and gas to Debtors on credit prior to the Petition Date. In the Bankruptcy Court, these Producers asserted a variety of claims against Debtors entitling them to receive distributions from the proceeds of the oil and gas ahead of other creditors. On multiple occasions, the Appellants asserted that their claims against Debtors could not be discharged without affording them an opportunity to litigate their claims in an adversary proceeding under the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). Debtors filed a motion to establish global procedures for resolving Producer-related claims (“Procedures”). Under the proposed Procedures, all interested parties had the right to brief, and present oral argument on their claims. However, regardless whether a Producer participated in the Procedures process, rulings from a representative action proposed under the Procedures would be binding on it. Appellants objected to the proposed Procedures. They argued that the Bankruptcy Rules entitled them to an adversary proceeding on their claims against the Debtors’ estates. The Bankruptcy Court approved the Procedures and stayed Appellants’ adversary proceeding. Appellants sought leave from the District Court to file an interlocutory appeal challenging the procedures. The District Court noted that “the question of whether [Appellants] will, in fact, be bound by the[] outcome [of the representative proceedings] can be litigated at a later date”—declined to hear the appeal. In re SemCrude, L.P., 407 B.R. 553, 557 (D. Del. 2009). Several representative proceedings—asserting rights under Oklahoma, Texas, Kansas, New Mexico, and Wyoming law—were subsequently filed. Other Producers based in Oklahoma (but not Appellants), Texas, Kansas, New Mexico and Wyoming filed a representative proceeding asserting that they retained property interests and statutory liens in the oil and gas they supplied to Debtors. The Bankruptcy Court granted summary judgment against the Oklahoma-based, Texas, and Kansas Producers. The Bankruptcy Court also sua sponte certified direct appeals to Third Circuit under 28 U.S.C. § 158(d)(2). However, before the appeals could be heard, the Debtors, their secured lenders, and an official committee representing Producers (“Producers Committee”) reached a settlement that purported to resolve the claims of all the Producers (the “Producer Settlement”). Among other things, the Producer Settlement provided over $160 million in distributions to Producers in exchange for the discharge of their claims. It also required the voluntary dismissal of all adversary proceedings and other litigation related to Producers claims. Appellants were not involved in negotiating the Producer Settlement and did not expressly agree to its terms. The Debtors then filed a plan of reorganization (the “Plan”) which incorporated the terms of the Producer Settlement. However, Appellants were able to negotiate a waiver of the requirement that they dismiss their adversary proceeding. All four of the Appellants filed objections to the Plan asserting that they should be permitted to proceed with their adversary proceeding. Following a hearing, the Bankruptcy Court overruled Appellants’ objections, approved the Plan, and entered a confirmation order in October 2009 (“Confirmation Order”). The Plan went into effect on November 30, 2009 (“Effective Date”). As a result, several corporate restructuring transactions, the repayment of certain payment obligations, and the issuance of securities to those parties receiving equity distributions, were implemented. Although the Appellants did not seek a stay of the Confirmation Order, they did file an appeal of the Confirmation Order. Reorganized Debtors sought to dismiss Appellants’ appeal as equitably moot. Among other things, Reorganized Debtors argued that granting Appellants’ requested relief would require unraveling the Plan and harm numerous third parties. To avoid these feared outcomes, the District Court dismissed the appeal and deemed it “equitably moot”.

Judge(s):

AMBRO, FISHER, and JORDAN,

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