Jeff Compton v. Aker Pusnes AS

Case: 11-20478 Document: 00512052957 Page: 1 Date Filed: 11/14/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 14, 2012
No. 11-20478 Lyle W. Cayce
Clerk
In the Matter of: MPF HOLDINGS US LLC; MPF CORP., LTD.; MPF-01,
LTD.,
Debtors
-------------------------------
JEFF COMPTON, Litigation Trustee of the MPF Litigation Trust,
Appellant
v.
BRIAN ANDERSON; CHEN DONGUY; CLH INVEST AS; CS TOTAL
LIMITED, now known as Coens Energy Company, Limited; DALIAN
AUSTRALIA INTERNATIONAL TRADE COMPANY, LIMITED; ERNEST &
YOUNG AS; FIRST COMMISSION SERVICE S.A.; FJORD TECHNOLOGY AS;
GRENLAND GROUP TECHNOLOGY AS; INOCEAN AS; IRONSHIELD
CAPITAL MANAGEMENT, L.L.P.; JANUS TRADING COMPANY; KEPPEL
SHIPYARD LIMITED; MORTEN HENRIK KIELLAND; GL NOBLE DENTON;
OCEANIA AS; PARISCO AS; PROJECT PARTNERS GREATER CHINA
LIMITED; TRETT CONTRACT SERVICES, LIMITED; VIA TRAVEL;
MUSTANG ENGINEERING, LIMITED; MUSTANG ENGINEERING, L.P.,
Appellees
Appeals from the United States Bankruptcy Court
for the Southern District of Texas
Before STEWART, Chief Judge, and DeMOSS and GRAVES, Circuit Judges.
Case: 11-20478 Document: 00512052957 Page: 2 Date Filed: 11/14/2012
No. 11-20478
DeMOSS, Circuit Judge:
I.
This is a direct appeal from the Bankruptcy Court for the Southern
District of Texas. MPF Corp. Ltd., MPF-01 Ltd., and MPF Holding US LLC
(collectively the “Debtors”) filed for Chapter 11 bankruptcy in September of 2008.
Prior to bankruptcy, the Debtors had been in the business of constructing a
massive mobile offshore drilling vessel known as a multi purpose floater (“MPF
unit”). Cost overruns forced the Debtors to cease work on the MPF unit and seek
bankruptcy protection.
In bankruptcy, the Debtors’ assets consisted primarily of construction and
supply contracts relating to the MPF unit (“Vendor Contracts”) as well as
equipment delivered pursuant to those contracts. The Debtors’ largest vendor
was Cosco Dalian Shipyard Co. Ltd. (“Cosco”), which had contracted to build the
hull of the MPF unit. After nearly two years of unsuccessful attempts to locate
a buyer for the MPF project, the Debtors’ main secured lender brokered a
transaction whereby the Debtors sold the Vendor Contracts and some of the
delivered equipment to Cosco, which then took over construction of the MPF
unit. Pursuant to the transaction, Cosco, the Debtors, and the vendors entered
into novation agreements that substituted Cosco for the Debtors in the Vendor
Contracts.
Under a reorganization plan approved by the bankruptcy court (the
“Reorganization Plan” or “Plan”), Cosco paid a lump sum toward the balance on
the secured and debtor-in-possession loans as consideration for the Vendor
Contracts and equipment. Vendors with secured claims were given the option
of either reclaiming their collateral or participating in the Cosco transaction.
Unsecured creditors were to receive disbursements from a litigation trust that
would pursue, among other claims, avoidance actions.
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Section 4.03 of the Reorganization Plan described the claims the Debtors
reserved to the Litigation Trustee, providing in relevant part that “all Causes of
Action, including but not limited to, (i) any Avoidance Action that may exist
against any party identified on Exhibits 3(b) and (c) of the Debtors’ statements
of financial affairs . . . shall be transferred to the Litigation Trustee.” The Plan
defined “Avoidance Actions” as “any and all actual or potential claims or Causes
of Action to avoid a transfer of property or an obligation incurred by the Debtors
pursuant to any applicable section of the Bankruptcy Code, including §§ 542,
543, 544, 545, 547, 548, 549, 550, 551, 553, and 742(a).” Section 4.03 specifically
excluded “any Cause of Action released in connection with or under the Plan or
by prior order of the Court” from the scope of reserved claims.
Shortly after the bankruptcy court approved the Plan, the Litigation
Trustee began initiating avoidance actions, including a number of actions
against vendors that had participated in the Cosco transaction. It is undisputed
that each of the defendants against whom the Litigation Trustee initiated
avoidance actions was listed on Exhibits 3(b) and 3(c) of the Debtors’ statement
of financial affairs. Several of the vendors sued by the Litigation Trustee joined
in a motion to “enforc[e] the terms of the confirmation order” and dismiss the
avoidance actions, primarily on the grounds that (1) the Debtors had released
the vendors from all claims as part of the Cosco transaction and (2) preference
recovery on the Vendor Contracts was barred because the Debtors had assumed
the Vendor Contracts in bankruptcy prior to assigning the contracts to Cosco.1
At a hearing on the vendors’ motion, the bankruptcy court sua sponte
raised the issue of whether the Plan’s reservation of avoidance actions was
1
The basis for this second argument is a line of cases following In re Superior Toy &
Mfg. Co., 78 F.3d 1169 (7th Cir. 1996). In general terms, these cases hold that when a debtor
assumes an executory contract in bankruptcy, the debtor may not later pursue an avoidance
claim for preferential payments on the contract. Resolving this appeal does not require us to
decide whether to adopt the Superior Toy doctrine. We therefore decline to address that issue.
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sufficient under Dynasty Oil & Gas, LLC v. Citizens Bank (In re United
Operating, LLC), 540 F.3d 351, 355 (5th Cir. 2008), which held that unless a
debtor makes a “specific and unequivocal” reservation of a cause of action, the
debtor will lack standing to bring the claim post-reorganization. After
supplemental briefing, the bankruptcy court found that the reservation language
in the Plan did not meet the “unequivocal” requirement of United Operating and
was therefore ineffective to reserve any causes of action to the Litigation
Trustee. See In re MPF Holding U.S. LLC, 443 B.R. 736, 748-55 (Bankr. S.D.
Tex. 2011) (order on motion to dismiss). In its written order, the bankruptcy
court first held that in order to meet the specific and unequivocal standard, a
debtor must (1) individually identify the parties to be sued post-confirmation, (2)
state that each party will be sued, rather than that it may be sued, and (3) set
forth the legal basis for the suit. Id. at 744-75. The bankruptcy court then found
that the that the Plan was insufficiently unequivocal because it reserved
avoidance actions that “may exist” against the parties identified on Exhibits 3(b)
and 3(c), rather than avoidance actions that “do exist and will be prosecuted.”
Id. at 749-750. The bankruptcy court also held that because the Plan provided
that released causes of action were not being reserved and appeared to release
at least some of the defendants sued by the Litigation Trustee, the reservation
language was ambiguous and therefore equivocal. Id. at 750-755.
As a result of its ruling, the bankruptcy court dismissed for lack of
standing every adversary action initiated by the Litigation Trustee. The
bankruptcy court certified its order for direct appeal to this court pursuant to 28
U.S.C. § 158(d)(2)(A)(ii)-(iii).2 In re MPF Holding U.S. LLC, 44 B.R. 719 (Bankr.
2
The motion to dismiss giving rise to the instant appeal was made in the main
bankruptcy case. The Litigation Trustee appealed the bankruptcy court’s ruling on that
motion as well as each of the bankruptcy’s court’s orders dismissing each individual adversary
proceeding. The bankruptcy court held the appeals from the individual cases in abeyance
pending the outcome of the appeal of the order in the main case, except for the appeals from
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S.D. Tex. 2011) (order certifying appeal). We have jurisdiction pursuant to 28
U.S.C. § 158(d)(2).
II.
This court reviews questions of standing de novo. Spicer v. Laguna Madre
Oil & Gas II, L.L.C. (In re Tex. Wyo. Drilling, Inc.), 647 F.3d 547, 550 (5th Cir.
2011). If the bankruptcy court “expressly or implicitly resolved any factual
disputes” in resolving a standing question, the court reviews such findings for
clear error. Id. “Mixed questions of fact and law, and questions concerning the
application of law to the facts, are reviewed de novo.” Bass v. Denny (In re Bass),
171 F.3d 1016, 1021 (5th Cir. 1999).
III.
“The filing of a bankruptcy petition creates an estate that is comprised of,
among other things, ‘all legal or equitable interests of the debtor in property as
of the commencement of the case.’” Highland Capital Mgmt. LP v. Chesapeake
Energy Corp. (In re Seven Seas Petroleum, Inc.), 522 F.3d 575, 584 (5th Cir.
2008) (quoting 11 U.S.C. § 541(a)(1)). “[R]ights of action such as claims based
on state or federal law,” are among the legal and equitable interests of the debtor
that become part of the bankruptcy estate. Id. (internal quotations omitted). In
a Chapter 11 bankruptcy where the debtor assumes debtor-in-possession status,
the debtor obtains most of the powers of a bankruptcy trustee, including the
power to pursue claims belonging to the estate. United Operating, 540 F.3d at355 (citing 22 U.S.C. § 1107(a)).
the adversary actions against Aker Pusnes AS (“Aker”), InOcean As (“InOcean”), KCA Deutag
Drilling Ltd. (“KCA”), Mustang Engineering Ltd. (“Mustang”), Worldwide Oilfield Machine,
Inc. (“Worldwide”), and Keppel Shipyard Limited (“Keppel”). With the exception of Keppel,
each of those entities were vendors that participated in the Cosco transaction and joined in the
original motion to dismiss. Aker, Worldwide, and KCA settled with the Litigation Trustee and
have been dismissed from this appeal. Accordingly, the orders on appeal before us are the
bankruptcy court’s ruling in the main case and its orders dismissing the adversary proceedings
against InOcean, Mustang, and Keppel.
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In general, when a Chapter 11 reorganization plan is confirmed by the
bankruptcy court, the debtor losses its debtor-in-possession status and with it,
standing to pursue the estate’s claims. Id. Section 1123(b)(3) of the Bankruptcy
Code, however, allows a debtor to retain causes of action possessed by the
bankruptcy estate by providing for the retention of such claims in its
reorganization plan. See 11 U.S.C. § 1123(b)(3). One of the options available to
a debtor under § 1123(b)(3) is to reserve some or all of its claims to a trustee
(often called a “liquidating trustee” or a “litigation trustee”) who then pursues
the claims for the benefit of creditors. See Torch Liquidating Trust ex rel. Bridge
Assocs. L.L.C. v. Stockstill, 561 F.3d 377, 387 (5th Cir. 2009) (“Section 1123
therefore allows a plan to transfer to a trustee of a liquidating trust the
authority to enforce an estate’s claims . . . and to distribute the proceeds of
successful suits.”); McFarland v. Leyh (In re Tex. Gen. Petroleum Corp.), 52 F.3d
1330, 1335 (5th Cir. 1995) (holding that § 1123(b)(3) “allows a plan to transfer
avoidance powers” to a liquidating trust that will “pursue avoidance actions on
behalf of unsecured creditors”). After the reorganization plan is confirmed by
the bankruptcy court, the debtor (or its representative) will have standing to
bring claims that the debtor reserved in the reorganization plan but will not
have standing to bring claims that were not reserved in the plan. United
Operating, 540 F.3d at 355; see also Tex. Gen. Petroleum Corp., 52 F.3d at 1335
n.4 (“For a debtor to assert an avoidance action postconfirmation, the plan must
give the debtor standing to assert the action and the debtor must assert it for the
benefit of the estate. Thus, a debtor cannot assert an avoidance action
postconfirmation if the plan does not provide him with the requisite authority
to do so.” (internal citation omitted)).
In Dynasty Oil and Gas, LLC v. Citizens Bank (In re United Operating,
LLC), 540 F.3d 351, 355 (5th Cir. 2008), the court held that a reorganization
plan must contain a “specific and unequivocal” reservation in order for the
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debtor to have standing to pursue a claim post-bankruptcy. The debtor in that
case brought common-law claims against the court-appointed operator of the
debtor’s oil and gas properties and the lender that had sought appointment of
the operator. 540 F.3d at 354. The reorganization plan specifically reserved
claims arising under various sections of the Bankruptcy Code. Id. at 356. It also
contained a general reservation of “any and all claims” arising under the
Bankruptcy Code. Id. The plan said nothing, however, about the kinds of
common-law claims the debtor asserted against the operator and secured lender.
Id. For that reason, the court held that the debtor failed to make a specific and
unequivocal reservation of those claims and that it therefore lacked standing to
pursue them. Id.The Fifth Circuit applied the specific and unequivocal standard in Spicer
v. Laguna Madre Oil & Gas II, L.L.C. (In re Tex. Wyo. Drilling, Inc.), 647 F.3d
547 (5th Cir. 2011), which was decided after the bankruptcy court issued the
order on appeal here. In Texas Wyoming, a litigation trustee filed over thirty
avoidance actions against the debtor’s former shareholders, seeking to recover
dividends paid to the shareholders while the debtor was insolvent. 647 F.3d at
549. The disclosure statement3 stated that the debtor reserved the right to
pursue “any preference to the full extent allowed under the Bankruptcy Code”
and expressly referenced Chapter 5 of the Code, which relates to avoidance
actions. Id. at 549. The disclosure statement further provided that among the
“various claims and causes of action the Debtor or the Reorganized Debtor may
pursue on behalf of the Debtor’s estate” are claims against “[v]arious pre-petition
shareholders of the Debtor [for] fraudulent transfer and recovery of dividends
3
The disclosure statement is a statutorily required document that must be approved
by the bankruptcy court and distributed to creditors prior to approval of a reorganization plan.
See 11 U.S.C. § 1125(b). In Texas Wyoming, the Fifth Circuit also held that “courts may
consult the disclosure statement in addition to the plan to determine whether a post-
confirmation debtor has standing.” 647 F.3d at 550.
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paid to shareholders.” Id. Neither the disclosure statement nor the
reorganization plan identified any individual pre-petition shareholders that the
debtor planned to sue or any specific transfers the debtor would seek to avoid.
Id. at 549, 551.
The defendant argued that the debtor’s reservation of avoidance actions
failed the specific and unequivocal test because it did not identify individual
defendants. Id. at 551-52. The court rejected that argument, stating: “We
observe that In re United Operating focused exclusively on the retention of
claims. It never held that intended defendants must be named in the plan.” Id.
at 552. At the same time, however, the court did not decide the issue of
“whether a debtor whose plan fails to identify any prospective defendants has
standing to pursue post-confirmation claims against subsequently-named
defendants” because the disclosure statement at issue in Texas Wyoming “did
identify the prospective defendants as ‘[v]arious pre-petition shareholders of the
Debtor’ who might be sued for ‘fraudulent transfer and recovery of dividends
paid to shareholders.’” Id.IV.
The bankruptcy court, working without the benefit of the recent Texas
Wyoming decision, read United Operating as holding that (1) “the parties to be
sued after confirmation must be individually identified ,” (2) the reorganization
plan must state that the individually named defendants “will be sued–not that
they may be sued or could be sued or might be sued,” and (3) “the reservation
must set forth the legal basis for the suit.” MPF Holding, 443 B.R. at 744-75.
In Texas Wyoming, the court specifically rejected the first requirement identified
by the bankruptcy court. See 647 F.3d at 552 (noting that United Operating
“never held that intended defendants must be named in the plan.”).
Additionally, Texas Wyoming held that a reorganization plan that merely
identified the parties who “might be sued” and gave the debtor “sole discretion”
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on whether to bring any of the reserved claims was sufficient under United
Operating. Id. at 549, 552. Texas Wyoming therefore made clear that the second
requirement identified by the bankruptcy court is not mandated by United
Operating. Accordingly, the bankruptcy court erred in holding that the Debtors’
reservation of avoidance actions in this case failed because it reserved claims
that “may exist.” See also Torch Liquidating Trust, 561 F.3d at 381 n.1 (finding
standing under § 1123(b)(3) where reorganization plan reserved “any and all
Causes of Action Debtors may have” (emphasis added)).4
The bankruptcy court also held that the Reorganization Plan did not make
a sufficiently unequivocal reservation because the Plan excluded released claims
from the scope of the reservation and also appeared to release at least some of
the defendants sued by the Litigation Trustee. In support of its holding, the
bankruptcy court relied primarily on National Benevolent Association of the
Christian Church (Disciples of Christ) v. Weil, Gotshal & Mangers, LLP (In re
National Benevolent Association of the Christian Church (Disciples of Christ)),
333 F. App’x 822 (5th Cir. 2009), an unpublished case decided shortly after
United Operating. The bankruptcy court read National Benevolent Association
as holding that if a reorganization plan is ambiguous as to which claims have
been reserved, then the plan per se fails to make a specific and unequivocal
reservation. MPF Holding, 443 B.R. at 749-51. It then found that the Plan’s
apparent release of some defendants combined with the exclusion of released
causes of action from the scope of the reservation clause created an ambiguity
that rendered the reservation language equivocal. Id. at 750-755.
4
The third requirement identified by the bankruptcy court—that the reorganization
plan set forth the legal basis for the reserved claims—was the core holding of United
Operating. That requirement, however, does not appear to have been part of the bankruptcy
court’s holding that the Debtors’ reservation was insufficiently unequivocal.
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In National Benevolent Association, the reorganized debtor sued the law
firm that represented it before and during bankruptcy for malpractice based on
the firm’s pre-bankruptcy conduct. Id. at 825. The law firm argued that the
reorganization plan only reserved causes of action relating to its representation
of the debtor during the bankruptcy while the debtor argued that the plan
reserved causes of action relating to the law firm’s legal work both before and
during the bankruptcy. Id. at 827-28. The Fifth Circuit did not decide which
party’s reading of the reorganization plan was the preferred one. Instead, the
court “merely conclude[d] that the plan’s provisions d[id] not specifically and
unequivocally reserve to [the debtor] the right to prosecute its claim against [the
law firm] arising out of the alleged attorney misconduct that occurred prior to
the . . . bankruptcy petition filing and proceedings.” Id. at 828-29.
While it is true that the court in National Benevolent Association
acknowledged that the language in the reorganization plan may have been
susceptible to more than one reading, it is not clear the court based its holding
on a rule that any ambiguity in the reservation language always fails the specific
and unequivocal test. Additionally, in Texas General Petroleum Corp.—a case
cited with approval by United Operating—the Fifth Circuit found § 1123(b)(3)
standing where the reservation language truly was ambiguous. 52 F.3d at 1336.
In that case, the reservation clause stated that “[a]mong the property of the
estate hereby distributed to the [liquidating] trust are those claims and causes
of action listed or described on Exhibit B (including causes of action created or
sanctioned by §§ 542-553).” Id. The claim initiated by the liquidating trustee
fell within the scope of “causes of action created or sanctioned by §§ 542-553,”
but was not listed or detailed on Exhibit B. Id. at 1335. The bankruptcy court
found that the plan was ambiguous as to whether the debtor was reserving only
those §§ 542-553 claims that were also listed on Exhibit B or whether §§ 542-553
causes of action were being reserved in addition to the claims on Exhibit B. Id.
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at 1336. Using parol evidence, the bankruptcy court ultimately found that the
§§ 542-553 claims not appearing on Exhibit B had nonetheless been reserved to
the liquidating trust. Id. The Fifth Circuit agreed with the bankruptcy court’s
determination that the plan was ambiguous and agreed with its resolution of the
ambiguity. Id. It therefore affirmed the bankruptcy court’s holding that the
liquidating trustee had standing to pursue the avoidance action. Id. The
holding in Texas General Petroleum Corp. is in clear tension with a general rule
that any ambiguity in the reservation language of a reorganization plan renders
the reservation invalid. This provides an additional reason to refrain from
reading National Benevolent Association as announcing such a rule.
Moreover, even if this court were to adopt the bankruptcy court’s reading
of National Benevolent Association, it does not appear that the reservation
language at issue here is actually ambiguous. There is no question that the
Reorganization Plan excluded released causes of action from the scope of
reserved claims. That there is some disagreement as to which parties were
released (or as to how or whether the Superior Toy doctrine applies) does not
create an ambiguity as to whether the Debtors retained the right to pursue to
released causes of action; they unambiguously did not. Further, the bankruptcy
court’s finding that the reservation language was ambiguous appears to have
been based solely on the conclusion that—irrespective of whether the Plan could
reasonably be interpreted as not releasing the avoidance action defendants—it
“at least appear[ed] to release the Defendants.” See In re MPF Holding, 443 B.R.
at 752. Under general rules of contract interpretation, a writing is not
ambiguous unless it is reasonably susceptible to more than one meaning. See
Dean v. City of Shreveport, 438 F.3d 448, 460-61 (5th Cir. 2006). Further, courts
regularly apply principles of contract interpretation to clarify the meaning of the
language in reorganization plans. See Advisory Comm. Of Major Funding Corp.
v. Sommers (In re Advisory Comm. of Major Funding Corp.), 109 F.3d 219, 222
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(5th Cir. 1997); Tex. Gen. Petroleum Corp., 52 F.3d at 1335. It follows that a
finding that one party’s interpretation of the Plan is reasonable cannot alone
support a finding that the Plan is ambiguous. If a court applies contract
interpretation principles and finds that the only reasonable interpretation of the
Plan is that certain parties were released, that would not render the reservation
insufficiently specific and unequivocal. Instead, it would mean that claims
against those parties fall outside the scope of the reservation. Thus, irrespective
of whether an ambiguity per se renders a reservation equivocal, the bankruptcy
court erred in its finding that the reservation language was ambiguous.
V.
In sum, the reasons relied upon by the bankruptcy court for finding that
the Reorganization Plan did not contain a sufficiently unequivocal reservation
are not supported by our case law. Rather, as in Texas Wyoming, the terms of
the Reorganization Plan here “are far more specific than those in In re United
Operating.” 647 F.3d at 551. Indeed, the Reorganization Plan in this case
provided more specificity than the plan at issue in Texas Wyoming. In addition
to stating the basis of recovery, the Exhibits referenced in the Reorganization
Plan identified each defendant by name. Accordingly, we hold that the
reservation language in the Reorganization Plan was sufficiently specific and
unequivocal under United Operating.
We cannot, however, find that the Litigation Trustee has standing to sue
each of the Appellees here. The reservation clause of the Reorganization Plan
specifically carves out released claims. Accordingly, the Litigation Trustee lacks
standing to bring, and the bankruptcy court is without jurisdiction to hear, any
such claims. Although several of the Appellees argued that they were released
in connection with the Cosco transaction from the claims brought by the
Litigation Trustee, the bankruptcy court expressly declined to rule on those
arguments. We therefore VACATE the bankruptcy court’s order and REMAND
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for further consideration of the Litigation Trustee’s standing consistent with this
opinion. In doing so, we note that while a court should determine whether it has
subject matter jurisdiction at the earliest possible stage in the proceedings, some
jurisdictional discovery may be warranted if the issue of subject matter
jurisdiction turns on a disputed fact. Eckstein Marine Serv., L.L.C. v. Jackson
(In re Eckstein Marine Serv. L.L.C.), 672 F.3d 310, 319-320 (5th Cir. 2012).
VACATED AND REMANDED
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