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In re Optim Energy, LLC

United States District Court, D. Delaware

March 13, 2015

CASCADE INVESTMENT, LLC, et al., Appellees. WALNUT CREEK MINING COMPANY, Appellant, Civ. No. 14-738-LPS


LEONARD P. STARK, District Judge.

Pending before the Court is Appellant Walnut Creek Mining Company's appeal from the May 13, 2014 Opinion and Order ("Order") (D.I. 1-2, 1-3) of the United States Bankruptcy Court for the District of Delaware dismissing its Motion for Derivative Standing ("Standing Motion"). For the reasons discussed, the Court will affirm the Bankruptcy Court's Order.


Cascade Investment, LLC (through its wholly-owned subsidiary ECJV) (collectively "Cascade" or "Appellee") and PNM Resources, Inc. ("PNMR") formed Debtor Optim Energy, LLC, in January 2007 for the purpose of entering the deregulated Texas electricity market. (D.I. 16 at 2) Cascade contributed cash, and PNMR contributed an existing power plant, resulting in equivalent ownership stakes between the two entities. ( Id. ) On February 12, 2014, Optim Energy, LLC and certain subsidiaries (collectively, "Debtor") filed for chapter 11 bankruptcy relief in the United States Bankruptcy Court for the District of Delaware. (Bankr. Case No. 14-10262, D.I. 1)

On June 1, 2007, Cascade and Debtor had entered into a financing arrangement with Wells Fargo. Wells Fargo agreed to extend Debtor an unsecured $1 billion revolving line of credit (the "Wells Fargo Credit Facility"). Cascade provided a joint guarantee of this debt (the "Cascade Guaranty") as a condition precedent to Wells Fargo's agreement to lend. (Bankr. Case No. 14-10262, D.I. 194, Ex. M at § 7.1(a)(3)(5)) In exchange for the Cascade Guaranty, Debtor similarly guaranteed that it would reimburse Cascade for any payments that Cascade made pursuant to the Cascade Guaranty (the "Reimbursement Guaranty"). (D.I. 14 at 2) Cascade secured the Reimbursement Guaranty with a first priority lien on substantially all of Debtor's assets, but subordinated this lien to the Wells Fargo Credit Facility. ( Id. ; Bankr. Case No. 14-10262, D.I. 194, Ex. M at § 7.1(a)(3)(5))

Debtor's bankruptcy filing constituted an event of default under the Wells Fargo Credit Facility. (D.I. 14 at 3) In accordance with the Cascade Guaranty, Cascade became liable for the approximately $712 million still outstanding under that debt facility. In preparation for Debtor's default, Cascade had wired this amount to an account at Wells Fargo Bank. (Bankr. Case No. 14-10262, D.I. 194, Ex. S) On the petition date, Wells Fargo set-off this deposit against Cascade's outstanding debt under the Wells Fargo Credit Facility, which then triggered Debtor's obligation to Cascade under the Reimbursement Guaranty. ( Id. ) Debtor's bankruptcy schedules list Cascade as a creditor holding a claim for approximately $712 million, secured by substantially all of its assets. ( Id., D.I. 206 at 18)

On March 6, 2014, the Bankruptcy Court granted the Final DIP Financing Order. ( Id. D.I. 144) This Order provided that any adversary proceedings challenging prepetition indebtedness must be brought by May 13, 2014 (the "Challenge Period"). ( Id. at ¶ 14) Walnut Creek Mining Company, the largest unsecured creditor in the case, sought to challenge Cascade's asserted secured position. (D.I. 14 at 3) On April 14, 2014, Walnut Creek filed its Standing Motion with the intent of commencing an adversary proceeding against Cascade. (Bankr. Case No. 14-10262, D.I. 194) Attached as an exhibit to that motion was a proposed adversary complaint (the "Complaint") that sought to recharacterize or subordinate Cascade's purported debt. ( Id. at Ex. A)

After briefing and oral argument, the Bankruptcy Court issued an Opinion (D.I. 1-2) and Order (D.I. 1-3) denying Walnut Creek's Standing Motion. The Bankruptcy Court found that no basis for derivative standing existed because Appellant's Complaint failed as a matter of law to state claims against Cascade. (D.I. 1-2 at 18)

On May 14, 2014, [2] Walnut Creek filed its notice of appeal in this Court. (D.I. 1) After the parties fully briefed the issues, the Court heard oral argument on February 10, 2015.


Appellant challenges the Bankruptcy Court's Order on the basis that it incorrectly found that the Complaint did not state claims for recharacterization and equitable subordination. (D.I. 12 at 5, 11) Appellant highlights several factual allegations in its Complaint that it claims the Bankruptcy Court did not properly consider. Appellant maintains that the Bankruptcy Court made factual findings, which was improper at this stage of the proceedings. Specifically, Appellant claims that the Bankruptcy Court should not have made factual findings with respect to (1) the adequacy of Debtor's capitalization on June 1, 2007; (2) Cascade's and Debtor's intention to treat the June 1, 2007 transaction as debt instead of equity; and (3) the equitableness of Cascade's conduct.[3] ( See D.I. 1-2 at 14-15, 18) Appellant requests that this Court reverse the Bankruptcy Court's Order and grant retroactive relief permitting Appellant to file the proposed adversary proceeding notwithstanding the expired Challenge Period. Appellant offers three bases for such relief: (1) granting nunc pro tune relief, (2) equitably tolling the deadline, or (3) excusing the late filing under Fed.R.Bankr.P. 9006(b)(1). (D.I. 14 at 14-18)

Cascade responds that the Bankruptcy Court considered and properly rejected all factual allegations in Cascade's Complaint. Moreover, Cascade maintains that even if Appellant has a basis for derivative standing, the expired Challenge Period forecloses it from filing an adversary proceeding that challenges pre-petition indebtedness. (D.I. 16 at 18)


Appeals from the Bankruptcy Court to this Court are governed by 28 U.S.C. § 158. Pursuant to § 158(a), district courts have mandatory jurisdiction to hear appeals "from final judgments, orders, and decrees" and discretionary jurisdiction over appeals "from other interlocutory orders and decrees." 28 U.S.C. § 158(a)(1) and (3). In conducting its review of the issues on appeal, this Court reviews the Bankruptcy Court's findings of fact for clear error and exercises plenary ...

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