United States District Court, D. Delaware
In re ENERGY FUTURE HOLDINGS CORP., et al, Debtors.
WILMINGTON TRUST, N.A., as First Lien Collateral Agent and First Lien Administrative Agent, et al., Appellees, DELAWARE TRUST COMPANY, as TCEH First Lien Indenture Trustee, Appellant, and MORGAN STANLEY CAPITAL GROUP INC., J. ARON & COMPANY, and TITAN INVESTMENT HOLDINGS LP, Appellees. Bankruptcy Adv. No. 15-51239-CSS
B. Glassman, GianClaudio Finizio, BAYARD, P.A., Wilmington,
DE; Michael S. Kim (argued), Jeremy C. Hollembeak, Benjamin
J.A. Sauter, Melanie L. Oxhorn, Andrew D. Wang, KOBRE &
KIM LLP, New York, NY; Tina N. Moss, PERKINS COIE LLP, New
York, NY. Attorneys for Appellant.
R. Altschuler, R. Craig Martin, DLA PIPER LLP (US),
Wilmington, DE; Howard R. Hawkins, Jr., Ellen M. Halstead,
Michele Maman, Thomas J. Curtin, CADWALADER, WICKERSHAM &
TAFT LLP, New York, NY; Mark C. Ellenberg (argued),
CADWALADER, WICKERSHAM & TAFT LLP, Washington, DC; Mark
Felger, Barry M. Klayman, Simon E. Fraser, COZEN
O'CONNOR, Wilmington, DE; Thomas J. Moloney (argued),
Sean A. O'Neal, Humayun Khalid, CLEARY GOTTLIEB STEEN
& HAMILTON LLP, New York, NY; Elsbeth Bennett, CLEARY
GOTTLIEB STEEN & HAMILTON LLP, Washington, DC; Bradley R.
Aronstam, Benjamin J. Schladweiler, ROSS ARONSTAM &
MORITZ LLP, Wilmington, DE; Salvatore A. Romanello, Ronit J.
Berkovich, Jessica Liou, WEIL, GOTSHAL & MANGES LLP, New
York, NY; Michael D. Debaecke, BLANK ROME LLP, Wilmington,
DE; Mark D. Kotwick, SEWARD & KISSEL LLP, New York, NY;
Joseph H. Huston, Jr., STEVENS & LEE, Wilmington, DE;
Peter M. Friedman, O'MELVENY & MYERS, Washington, DC.
Attorneys for Defendants.
ANDREWS, U.S. DISTRICT JUDGE.
an appeal from the Bankruptcy Court's April 27, 2017
Order denying Appellant's Motion to Partially Vacate the
Allocation Order pursuant to Federal Rule of Bankruptcy
Procedure 9024 and Federal Rule of Civil Procedure 60(b). The
appeal is fully briefed. (D.I. 29; D.I. 38; D.I.
I held oral argument on November 7, 2017. (D.I. 45
("Tr.")). For the reasons set forth below, the
Order is AFFIRMED.
April 29, 2014, Texas Competitive Electric Holdings
("TCEH"), its parent Energy Future Holding
Competitive Holdings Company (collectively, with TCEH and its
debtor subsidiaries, the "TCEH Debtors"), and
certain affiliates (collectively, the "Debtors")
"filed voluntary petitions under chapter 11 of title 11
of the United States Code" in the United States
Bankruptcy Court for the District of Delaware. (D.I. 32-11
("Orig. Op.") at A1132). As of that date, the Debtors
represented that they had approximately $25.6 billion of
first lien debt. (Orig. Op. at A1137-38). Their debt was
secured by liens on collateral granted pursuant to two
agreements: (i) the Security Agreement, dated as of October
10, 2007, as amended and restated as of August 7, 2009, and
(ii) the Pledge Agreement, dated as of October 10, 2007, as
amended and restated as of August 7, 2009. (Id. at
A1138). The debt, collectively known as the "First Lien
Claims, " was held by the "First Lien
relationship among the First Lien Creditors with respect to
their shared collateral is governed by the Collateral Agent
and Intercreditor Agreement, " executed in 2007 and
amended in 2009 (the "Intercreditor Agreement").
(Orig. Op. at A1139).
2.1 of the Intercreditor Agreement provides that the property
rights held by each First Lien Creditor in the First Lien
Collateral and its proceeds is pari
passu as among the First Lien Creditors
"except as otherwise provided in Section 4.1"
(Orig. Op. at A1139). Section 4.1 provides:
4.1 Application of Proceeds. Regardless of any
Insolvency or Liquidation Proceeding which has been commenced
by or against the Borrower or any other Loan Party,
Collateral or any proceeds thereof received in connection
with the sale or other disposition of, or collection on, such
Collateral upon the exercise of remedies under the Security
Documents by the Collateral Agent shall be applied in
the following order (it being agreed that the Collateral
Agent shall apply such amounts in the following order as
promptly as is reasonably practicable after the receipt
thereof; provided that such amounts shall not be so
applied until such time as the amount of the Secured
Obligations has been determined in accordance with the terms
hereof and under the terms of the relevant Financing
Document, including and subject to Sections 4.3 and
(a) with respect to all Collateral other than Deposit L/C
first, on a pro rata basis, to the payment
of all amounts due to the Collateral Agent, any Agent, and
the Issuing Lenders (in such capacities) (other than amounts
constituting Interest Expenses) under any of the Financing
Documents, excluding in the case of the Issuing Lenders,
amounts payable in connection with any unreimbursed amount
under any Letter of Credit;
second, on a pro rata basis to any Secured
Party which has theretofore advanced or paid any fees to any
Agent or Issuing Lender, other than any amounts covered by
priority first, an amount equal to the amount thereof so
advanced or paid by such Secured Party and for which such
Secured Party has not been previously reimbursed;
third, on a pro rata basis, to the payment
of, without duplication, (a) all principal and other amounts
then due and payable in respect of the Secured Obligations
(including Cash Collateralization of all outstanding
Revolving Letters of Credit as required under the Credit
Agreement or any other applicable Financing Document) and (b)
the payment of Permitted Secured Hedge Amounts then due and
payable to any Secured Commodity Hedge Counterparty under any
Secured Commodity Hedge and Power Sales Agreement; and
last, the balance, if any, after all of the Secured
Obligations have been indefeasibly paid in full in cash, to
the Loan Parties or as otherwise required by applicable law.
(b) with respect to Deposit L/C Collateral:
first, on a pro rata basis, to the payment
of all amounts due to the Deposit Letter of Credit Issuer
under any of the Financing Documents, excluding amounts
payable in connection with any unreimbursed amount under any
Letter of Credit;
second, on a pro rata basis, to the payment
of all amounts due to the Deposit Letter of Credit Issuer in
an amount equal to 100% of the Unpaid Drawings under any
Deposit Letter of Credit;
third, on a pro rata basis, to any Secured
Party which has theretofore advanced or paid any fees to the
Deposit Letter of Credit Issuer, other than any amounts
covered by priority second, an amount equal to the amount
thereof so advanced or paid by such Secured Party and for
which such Secured Party has not been previously reimbursed;
fourth, on a pro rata basis, to the payment of all
other Deposit L/C Obligations; and
last, the balance, if any, after all of the Deposit
L/C Obligations have been indefeasibly paid in full in cash,
as set forth above in Section 4.1 (a).
(D.I. 30-1, at A23-24) (Intercreditor Agreement § 4.1)
(emphasis added). Section 4.1 thus contains a
"waterfall, " which is a set of rules governing the
distribution of the Secured Parties' collateral or
collateral proceeds ("Section 4.1 Waterfall").
6, 2014, the Bankruptcy Court entered a Cash Collateral Order
granting Adequate Protection Payments to the First Lien
Creditors "to the extent of any diminution in value of
their interests in Collateral." (D.I. 30-2 at A61-119;
D.I. 34-6 ("New Op.") at 2186). Then, on
September 21, 2015, the Debtors filed their Fifth Amended
Joint Plan of Reorganization (the "Original Plan").
(See D.I. 30-5 at A308). The Original Plan was
confirmed in December 2015. (New Op. at A2179).
commenced an adversary proceeding in the Bankruptcy Court.
There were three "different types of TCEH First Lien
Creditors in [the] adversary proceeding[, ] each with a
different interest rate." (Orig. Op. at A1131). The
First Lien Creditors were undersecured. (Id.). As a
result, the First Lien Creditors disagreed as to how
distributions should be made under any chapter 11 plan
involving the TCEH Debtors.
adversary proceeding, Appellant sought, among other relief, a
declaration that Section 4.1 of the Intercreditor Agreement
"governs the allocation among TCEH First Lien Creditors
of distributions to be made under any confirmed and
consummated chapter 11 plan involving the TCEH Debtors,
" including the Original Plan. Appellant also sought a
declaration that, if applied, Section 4.1 "requires such
distributions to be allocated based on the relative amounts
owing to the TCEH First Lien Creditors on the date of
distribution, including accrued but unpaid post-petition
interest, regardless of whether such interest was allowed or
allowable in the Chapter 11 Cases." (New Op. at A2179).
Appellant's requests were part of the parties'
cross-motions for judgment on the pleadings. (Orig. Op. at
A1134-35; D.I. 29 at 8; D.I. 38 at 10).
March 22, 2016, the Bankruptcy Court ruled in its Allocation
Order and accompanying Opinion that "Section 4.1 [does]
not govern allocation of distributions, if any, when made
upon the subsequent consummation" of the Original Plan.
(New Op. at A2179).
Original Plan failed to obtain certain required regulatory
approvals, so the Debtors withdrew the Original Plan on April
30, 2016. (D.I. 38 at 8; New Op. at A2179). On May 1, 2016,
the Debtors filed a new plan of reorganization (the "New
Plan"). (D.I. 34-3 at A2042-166).
Plan provided for several distributions to the First Lien
Creditors, pursuant to an internal Spin-Off transaction.
Under the New Plan, as part of the internal Spin-Off
transaction, the Debtor, TCEH, transferred its interests in
its subsidiaries to a newly formed subsidiary, Reorganized
TCEH, now known as Vistra Energy. (New Op. at A2192). In
exchange, TCEH received (a) 100% of the membership interests
in Reorganized TCEH, which became common stock upon
Reorganized TCEH's conversion into a corporation, and (b)
the net cash proceeds of Reorganized TCEH's newly issued
debt. (New Op. at A2192-93; D.I. 38 at 9). A Spin-Off
Preferred Stock Sale then occurred, in which Reorganized TCEH
transferred assets to a new subsidiary, Preferred Stock
Entity, in exchange for Preferred Stock Entity's common
stock and a class of preferred stock. (New Op. at A2192-93;
D.I. 34-3 at A2078). Reorganized TCEH sold the preferred
stock to third party investors, which allowed it to obtain a
step-up in basis tax benefit. (New Op. at A2199).
filed a motion to partially vacate the Allocation Order
pursuant to Federal Rule of Bankruptcy Procedure 9024 and
Federal Rule of Civil Procedure 60(b), because the Allocation
Order was premised on the failed Original Plan. (New Op. at
A2180). After examining the changes between the Original Plan
and the New Plan, the Bankruptcy Court decided that the
"relevant changes between the First Plan and the New
Plan are minimal at best." (New Op. at A2194, A2199).
Thus, the Bankruptcy Court denied Appellant's motion to
partially vacate judgment, adopted its Allocation Opinion,
and decided that Section 4.1 does not govern the allocation
of distributions, if any, made under the New Plan. (New Op.
at A2199, A2212-13). The Bankruptcy Court entered a new
Allocation Order adopting its original Allocation Order.
(D.I. 9 at 6).
previously appealed the Bankruptcy Court's original
Allocation Order. That appeal is located at Docket No.
16-189. The parties filed a joint motion for entry of an
order consolidating the original appeal (No. 16-189) with the
present appeal of the Bankruptcy Court's new Allocation
Order (No. 17-540). (D.I. 9). I granted that motion on June
7, 2017. (D.I. 14). Accordingly, the original appeal (No.
16-189) is dismissed as moot.
Standard of Review
Court has jurisdiction to hear an appeal from a final
judgment of the Bankruptcy Court pursuant to 28 U.S.C. §
158(a)(1). On appeal from an order issued by the Bankruptcy
Court, the Court "review[s] the bankruptcy court's
legal determinations de novo, its factual findings
for clear error and its exercise of discretion for abuse
thereof." In re Trans World Airlines, Inc., 145
F.3d 124, 131 (3d Cir. 1998). Abuse of discretion is found
where a "court's decision rests upon a clearly
erroneous finding of fact, an errant conclusion of law, or an
improper application of law to fact." Int'l
Union, United Auto., Aerospace & Agr. Implement Workers
of Am., UAW v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d
Cir. 1987). Since the matter being reviewed here involves the
Bankruptcy Court's conclusions about the construction of
a contractual provision and its application to a plan of
reorganization and a cash collateral order, review is de
Motion for Judgment on the Pleadings
standard for a Rule 12(c) motion for judgment on the
pleadings is the same as the standard for a Rule 12(b)(6)
motion to dismiss for failure to state a claim upon which
relief can be granted. See Children's Seashore House
v. Waldman, 197 F.3d 654, 657 n. 1 (3d Cir. 1999);
Turbe v. Gov't of the Virgin Islands, 938 F.2d
427, 428 (3d Cir. 1991).
requires a complainant to provide "a short and plain
statement of the claim showing that the pleader is entitled
to relief" Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) allows
the accused party to bring a motion to dismiss the claim for
failing to meet this standard. A Rule 12(b)(6) motion may be
granted only if, accepting the well-pleaded allegations in
the complaint as true and viewing them in the light most
favorable to the complainant, a court concludes that those
allegations "could not raise a claim of entitlement to
relief." Bell Ail. Corp. v. Twombly, 550 U.S.
544, 558 (2007).
'detailed factual allegations' are not required, a
complaint must do more than simply provide 'labels and
conclusions' or 'a formulaic recitation of the
elements of a cause of action."' Davis v.
Abington Mem'l Hosp., 765 F.3d 236, 241 (3d
Cir. 2014) (quoting Twombly, 550 U.S. at 555). I am
"not required to credit bald assertions or legal
conclusions improperly alleged in the complaint." In
re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d
198, 216 (3d Cir. 2002). A complaint may not be dismissed,
however, "for imperfect statement of the legal theory
supporting the claim asserted." Johnson v. City of
Shelby, 135 S.Ct. 346, 346 (2014).
complainant must plead facts sufficient to show that a claim
has "substantive plausibility." Id. at
347. That plausibility must be found on the face of the
complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). "A claim has facial plausibility when the
[complainant] pleads factual content that allows the court to
draw the reasonable inference that the [defendant] is liable
for the misconduct alleged." Id. Deciding
whether a claim is plausible will be a "context-specific
task that requires the reviewing court to draw on its
judicial experience and common sense." Id. at
a general matter, a district court ruling on a motion to
dismiss may not consider matters extraneous to the
pleadings." In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).
"However, an exception to the general rule is that a
'document integral to or explicitly relied upon in the
complaint' may be considered 'without converting the
motion [to dismiss] into one for summary judgment.'"
Id. (emphasis removed).