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In re Prospector Offshore Drilling

United States District Court, D. Delaware

March 22, 2018




         This dispute arises in the Chapter 11 cases of Prospector Offshore Drilling S.a r.l. and its affiliated debtors ("Prospector Cases"). Presently before the Court is pro se appellant Michael R. Hammersley's Emergency Motion for Stay Pending Appeal from the Orders Approving the Debtors Settlement and Dismissal (Civ. No. 18-367, D.I. 5; Civ. No. 18-368, D.I. 5) ("Stay Motion"). For the reasons that follow, the Court will deny the Stay Motion.


         Appellant filed the Stay Motion in connection with his appeals of: (i) the Bankruptcy Court's order (Prospector D.I. 369)[1] ("Settlement Order") granting Debtors' motion (Prospector D.I. 332) ("Settlement Motion") and authorizing Debtors to enter into a settlement agreement ("Settlement Agreement") to resolve a dispute arising under Sale-Leaseback Agreements[2] with SinoEnergy, the Prospector Corporations, New Paragon, and the Joint Administrators; and (ii) the Bankruptcy Court's order (Prospector D.I. 368) ("Order Authorizing Dismissal") granting Debtors' motion (Prospector D.I. 333) ("Dismissal Motion") and authorizing Debtors to submit the approved form of dismissal order under certification of counsel upon: satisfaction of administrative expenses;[3] payment of all other amounts owed on account of the Prospector Entities' outstanding claims and settlement amounts owed to the Prospector Corporations; consummation of the Settlement Agreement and occurrence of the Closing Date; and transfer of Paragon Parent's shares in Prospector Parent to New Paragon as contemplated by the Plan. At the conclusion of the hearing on the Settlement Order and Order Authorizing Dismissal, the Bankruptcy Court denied Appellant's oral motion to stay the Settlement Order and the Order Authorizing Dismissal. (Prospector, 3/5/18 Hr'g. Tr. at 23:3-12)

         On March 5, 2018, Appellant timely appealed the Order Authorizing Dismissal (Civ. No. 18-367) and the Settlement Order (Civ. No. 18-368). On March 16, 2018, Appellant filed the Stay Motion, seeking a stay of both orders pending appeal, together with a motion for expedited consideration of the Stay Motion on the basis that Debtors intend to close a sale of certain assets affected by the Settlement Order on or before March 24, 2018 at 12:01 a.m. (Civ. No. 18-367, D.I. 6; Civ. No. 18-368, D.I. 6).[4] On March 19, 2018, the Court entered an order setting an expedited briefing schedule on the Stay Motion. (Civ. No. 18-367, D.I. 12; Civ. No. 18-368, D.I. 12) Debtors have filed their response opposing relief (Civ. No. 18-367, D.I. 24; Civ. No. 18-368, D.I. 24) ("Response").[5]

         Parties' Contentions.

         Appellant is a shareholder of Paragon Offhsore pic ("Paragon Parent"). In Paragon Parent's prior bankruptcy proceedings (the "Paragon Cases"), [6] a plan was confirmed and modified to provide that Paragon Parent would transfer its shares in Prospector Parent (and thus Prospector Entities) to New Paragon upon the satisfaction of certain conditions, including that the obligations of the Contracting Debtors under the terms of the Sale-Leaseback Agreements were discharged in full and the encumbrances, including over Prospector shares, were released. (Paragon D.I. 1775, 1792) Appellant argued that the Prospector Entities, while subsidiaries of Paragon Parent, were not subject to the Paragon Cases; that Appellant has an equity interest in the Prospector Entities; and that he is entitled to recovery from Paragon Parent, despite the fact that Paragon Parent's creditors did not receive full recovery, and there is a shortfall of over $1 billion that would need to be addressed before equity holders of Paragon Parent would be entitled to a distribution.[7] The plan was confirmed and modified over Appellant's objections, and Appellant's appeal of the plan modification order is pending.[8]

         The Prospector cases were filed to protect Debtors' interest in valuable drilling rig assets ("Rigs") while working toward resolving the Sale-Leaseback dispute. The Settlement Agreement provides for the satisfaction of Debtors' obligations under the Sale-Leaseback Agreement and, in exchange, the transfer of ownership of the Rigs to the Prospector Entities free and clear of all encumbrances (which triggers Paragon Parent's obligation to transfer its shares in Prospector Parent to New Paragon). Appellant's appeals are, therefore, based on his continued assertion that the Bankruptcy Court erroneously concluded that the Prospector Entities were subject to the Paragon Cases (Stay Motion at 8-16), and that the Settlement Order approved an "impermissible structured dismissal" by permitting Debtors to transfer the Prospector Entities to New Paragon (id. at 16-18).

         Debtors argue that Appellant's argument lacks merit and has been rejected many times in the Bankruptcy Court proceedings.[9] Debtors argue that staying either the Settlement Order or the Order Authorizing Dismissal would cause catastrophic harm (i) to the Debtors and their creditors, by derailing the Settlement Agreement and leaving them only litigation and a burdensome break-up fee, and (ii) the shareholders of New Paragon (i.e., the less than whole creditors of Paragon Parent), who are positioned to receive $232 million pursuant to a potential sale to Borr Drilling Limited ("Borr Transaction"), as the consummation of the Settlement Agreement and dismissal of the Prospector cases are both conditions to the Borr Transaction. Debtors add that any stay would have to be conditioned on the immediate posting of a bond sufficient to protect the Debtors and their stakeholders from irreparable injury, in the amount of approximately $335 million.

         Jurisdiction and Standard of Review.

         Appeals from the bankruptcy court to this court are governed by 28 U.S.C. § 158. District courts have mandatory jurisdiction to hear appeals "from final judgments, orders, and decrees." 28 U.S.C. § 158(a)(1). A stay pending appeal is extraordinary relief. See Cones toga Wood Specialties Corp. v. Sec'y of U.S. Dep't of Health & Human Servs., 2013 WL 1277419, at *1 (3d Cir. Feb. 8, 2013). Appellant bears the burden of proving that a stay of the Settlement Order and Order Authorizing Dismissal is warranted based on the following criteria: (1) whether appellant has made "a strong showing" that it is likely to succeed on the merits; (2) whether appellant will be irreparably injured absent a stay; (3) whether a stay will substantially injure other interested parties; and (4) where the public interest lies. Republic of Phil. v. Westinghouse Electric Corp., 949 F.2d 653, 658 (3d Cir. 1991). The most critical factors are the first two: whether the appellant has demonstrated (1) a strong showing of the likelihood of success, and (2) that it will suffer irreparable harm - the latter referring to harm that cannot be prevented or fully rectified by a successful appeal. See In re Revel AC, Inc., 802 F.3d 558, 568 (3d Cir. 2015) (citing Nken v. Holder, 556 U.S. 418, 434 (2009) (internal citations omitted)). The court's analysis should proceed as follows:

Did the applicant make a sufficient showing that (a) it can win on the merits (significantly better than negligible but not greater than 50%) and (b) will suffer irreparable harm absent a stay? If it has, we balance the relative harms considering all four factors using a 'sliding scale' approach. However, if the movant does not make the requisite showings on either of these first two factors, the inquiry into the balance of harms and the public interest is unnecessary, and the stay should be denied without further analysis.

Revel AC, 802 F.3d at 571 (emphasis in original; internal quotation marks and citations omitted).

         Likelihood of Success on the Merits. As to the first factor, Appellant has not met its burden of making "a strong showing" that it is likely to succeed on the merits of its appeal of the Settlement Order. Appellant appears to challenge the Settlement Order on the basis that it substantively consolidated the Prospector Cases and the Paragon cases. (See Stay Motion at 14-16) Debtors argue this is factually incorrect, as the Settlement Order simply approves the Settlement Agreement resolving issues between Debtors and their largest creditor, SinoEnergy. (See Response at 10 & n. 17) As a challenge to the ...

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