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In re Maxus Energy Corp.

United States District Court, D. Delaware

September 12, 2019

In re MAXUS ENERGY CORPORATION, et al., Debtors.
v.
YPF S.A., YPF INTERNATIONAL S.A., YPF HOLDINGS, INC., CLH HOLDINGS, INC., REPSOL, S.A., REPSOL EXPLORACION, S.A., REPSOL USA HOLDINGS CORP., REPSOL E&P USA, INC., REPSOL OFFSHORE E&P USA, INC., REPSOL E&P T&T LIMITED, and REPSOL SERVICES CO., Defendants. MAXUS LIQUIDATING TRUST, Plaintiff, Misc. Nos. 19-51 -RGA, 19-52-RGA

          Brian E. Farnan, Esq., Michael J. Farnan, Esq., Farnan LLP, Wilmington, DE, attorneys for plaintiff Maxus Liquidating Trust.

          Adam G. Landis, Esq., Matthew B. McGuire, Esq., Landis Rath & Cobb LLP, Wilmington, DE, attorneys for YPF Defendants.

          Robert J. Denhey, Esq., Curtis S. Miller, Esq., Daniel B. Butz, Esq., Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE; Edward Soto, Esq., Weil, Gotshal & Manges LLP, Miami, FL; and Robert Lemmons, Esq., Weil Gotshal & Manges LLP, New York, NY, attorneys for Repsol Defendants.

          MEMORANDUM

          ANDREWS, UNITED STATES DISTRICT JUDGE:

         Pending before the Court are two motions for leave to file interlocutory appeal from a February 15, 2019 Bankruptcy Court order (Adv. D.I. 108)[1] ("Interlocutory Order") filed by the YPF Defendants (Misc. No. 19-51-RGA, D.I. 1) ("YPF Mot.") and the Repsol Defendants (Misc. No. 19-52-RGA, D.I. 1) ("Repsol Mot.," and, together with the YPF Mot., "Motions for Leave"). The Interlocutory Order denied motions to dismiss the complaint (Adv. D.I. 1) in the above -captioned adversary proceeding ("Adversary Proceeding") (Adv. D.I. 50, 57) ("Motions to Dismiss") filed by both the YPF Defendants and the Repsol Defendants for the reasons set forth in the Bankruptcy Court's accompanying letter opinion (Adv. D.I. 107) ("Opinion" or "Op."). Plaintiff Maxus Liquidating Trust ("Trust") has filed its opposition, and the Motions for Leave are fully briefed. (D.I. 7, 8, 9).[2] For the reasons set forth below, the Court will deny the Motions for Leave.

         I. BACKGROUND

         A. Parties

         The dispute framed by the Complaint centers on a series of environmental contaminations that have occurred over several decades at various sites of the Debtors' business operations, the most significant being the Diamond Alkali site located on the Passaic River in New Jersey. Debtor Maxus is a successor to Diamond Alkali Company and its parent Diamond Shamrock Corporation. These companies and various successors operated a number of industrial sites throughout the U.S. In 1986, an affiliate of Occidental Chemical Corporation purchased Diamond Shamrock's chemicals business through a stock purchase, and the affiliate thereafter merged into Occidental. Importantly, Diamond Shamrock, which was renamed Maxus in 1987, agreed to indemnify Occidental from and against certain environmental liabilities. (Compl. ¶¶ 41, 44-45). In 1995, YPF, parent of YPF Holdings, utilized a leveraged buyout in order to obtain control of Maxus through acquisition of its common stock. Following the leveraged buyout, a significant amount of Maxus' foreign assets were transferred to YPF. In 1996 and 1997, Maxus sold foreign subsidiaries to YPFI, a foreign subsidiary of YPF. (Compl. ¶¶ 59, 86, 90, 93). In 1999, Repsol acquired a majority ownership of YPF, thereby granting Repsol an indirect ownership interest in Maxus. Repsol was YPF's controlling shareholder from 1999 to 2012. Repsol allegedly caused Maxus to sell assets to third parties in 1999 and 2000 and caused the sale of former Maxus subsidiaries to Repsol affiliates and third parties in 2001 and 2002. During Repsol's ownership of YPF, certain Debtors entered into settlement agreements amongst themselves and with Repsol in 2007 and 2009, and with YPF in 2008. (Compl. ¶¶ 110, 114, 119-121, 139-140, 148). Upon expropriation of Repsol's interest by the Argentine government in 2012, both the ownership relationship between Repsol and YPF and Repsol's indirect affiliation with Maxus were severed. (Compl. ¶¶ 188-191).

         B. New Jersey Litigation

         In 2005, the State of New Jersey Department of Environmental Protection ("State") sued Maxus, Repsol, and Occidental for environmental clean-up costs resulting from damage and pollution of the Passaic River ("New Jersey Litigation"). In May of 2008, Occidental filed cross-claims against Maxus for various causes of action including breach of contract, and against YPF and Repsol directly and derivatively for causes of action including alter ego, fraudulent transfers, unjust enrichment, and civil conspiracy. In December 2013, the State settled with the non-Occidental Defendants. Pursuant to the settlement, "all claims that the State had asserted against Repsol, YPF, YPF International, YPF Holdings, CLH Holdings, Maxus, Tierra, and Maxus International were dismissed in exchange for a $130 million payment to the State." (Occidental Adv. D.I. 28 at ¶ 39). Additionally, the settlement provided for certain claims against Occidental to be released by the State. (Id.) In December 2014, the State released all remaining claims against Occidental pursuant to a consent judgment in exchange for a payment of $190 million. (Id. at ¶ 40).

         While the claims brought by the State were resolved by these settlements, the parties cross-claims continued on in the New Jersey Court. After ruling on various motions to dismiss and summary judgment, the New Jersey Court ordered a trial of Occidental's claims that YPF was the alter ego of one or more Debtor entities.[3] The trial was set to begin on Monday, June 20, 2016.

         C. The Bankruptcy

         On the evening of June 17, 2016 ("Petition Date"), Debtors filed their petitions under Chapter 11 of the Bankruptcy Code. Creditors in the bankruptcy proceedings filed proofs of claim asserting that the Debtors had caused in excess of $ 13 billion in environmental damages as a result of their and their predecessors' toxic discharges, and Occidental is the Debtors' largest unsecured creditor. (B.D.I. 2, ¶ 20). The Chapter 11 petitions stayed the New Jersey Litigation indefinitely. Following the Petition Date, Occidental immediately removed the New Jersey Litigation to the Bankruptcy Court.[4] On July 20, 2016, Repsol moved to have the Bankruptcy Court remand back to New Jersey all of their claims involving Occidental, including any claims related to Repsol's alter ego conduct. (Occidental Adv. D.I. 27, 28). YPF opposed remand, taking the position that any and all claims seeking alter ego recoveries against the Debtors' prepetition shareholders now belonged to the Debtors, not Occidental, by virtue of the bankruptcy petitions: "The Remand Motion mischaracterizes the [removed] Claims and disregards the Debtors' exclusive jurisdiction over these and all other pre-petition, general claims originating out of the [New Jersey Litigation]." (Occidental Adv. D.I. 33, ¶ 1 (opposing Repsol's motion for remand)). YPF argued that, post-petition, "creditors [like Occidental] lack standing to assert claims that are 'property of the estate, '" and that "if a claim is a general one, with no particularized injury arising from it, that may be asserted by any creditor, only a debtor's estate may bring it." (Id. at ¶ 2). On November 15, 2016, the Bankruptcy Court issued its opinion agreeing with YFP and holding that "the Occidental [alter-ego] Claims are, in fact, property of the bankruptcy estate and the proper party to bring them is the Debtors." In re Maxus Energy Corp., 560 B.R. 111, 114 (Bankr. D. Del. 2016) ("Abstention Opinion").

         Occidental sought reconsideration, arguing that it retained co-extensive authority to pursue its own alter ego claims against both YPF and Repsol. The Bankruptcy Court disagreed and denied reconsideration in a decision and order dated August 2, 2017. In that order, the Bankruptcy Court found that, "notwithstanding the individualized nature of the injury or cause of action, to the extent the other creditors and the debtor could pursue claims based upon the same theory, the claim in question should be considered general, and, therefore, property of the estate." In re Maxus Energy Corp., 571 B.R. 650, 657 (Bankr. D. Del. 2017) ("Clarification Opinion") (emphasis in original) (citing Emoral Inc. v. Diacetyl (In re Emoral, Inc.), 740 F.3d 875 (3d Cir. 2014)). No. party appealed the Bankruptcy Court's determinations. The Trust argues that these determinations established a "bright line law of the case" that "even if the Debtors' prepetition creditors such as Occidental may have had trial-ready prepetition alter ego claims, the Debtors were the only parties who could assert such claims for the benefit of all creditors." (D.I. 7 at 6).

         The Debtors proposed a plan of liquidation anchored in prosecuting claims against Defendants. (Compl. ¶¶ 206, 211). The Plan was structured to provide that the Trust would bring a consolidated action, with any litigation recoveries to be distributed pursuant to a heavily negotiated plan waterfall. (D.I. 7 at 7). The Debtors' proposed plan was confirmed on May 22, 2017 (B.D.I. 1460) ("Plan"). The Plan established the Trust and provided for the transfer of all causes of action held by the Debtors and their estates against any of the YPF entities to the Trust. (Plan, § I.A.217). No. party appealed the order confirming the Plan.

         D. Adversary Proceeding

         On June 14, 2018, the Trust filed the 130-page Complaint commencing the Adversary Proceeding. The Complaint generally alleges a three-part strategy developed and implemented by Defendants in the late 1990s and early 2000s to strip the Debtors of any meaningful assets that could have been used to satisfy their environmental obligations and to transfer those assets out of the U.S. The Complaint alleges that the Defendants used their corporate control over the Debtors to ensure that those entities did not precipitate any event that would reveal the environmental funding deficit, including through "drip-feed[ing]" the Debtors with barely enough capital to meet their quarterly expenses. (Compl. at ¶ 12). The Complaint further alleges that, once the statutes of limitations had presumably passed on potential claims against them, Defendants intended to cleanse their liability exposure in a U.S. bankruptcy proceeding over the objection of all of the Debtors' environmental creditors. (Id. at ¶¶ 170, 227). Count I of the Complaint is a claim for alter ego liability, in which the Trust seeks to hold Defendants jointly and severally liable (up to $14 billion) for all of the allowed proofs of claim filed by creditors against the Debtors. Counts II through XXI seek to avoid alleged fraudulent transfers that occurred between 1996 and 1997 (prior to Repsol's acquisition of YPF) and separate transfers that occurred between 1999 to 2009 (during the period in which Repsol had a controlling interest in YPF). Finally, the Trust asserts claims for unjust enrichment (Count XXII) and civil conspiracy (Count XXIII).

         On October 12, 2018, Defendants filed motions to dismiss the Complaint in its entirety, arguing that the Trust had not pleaded a single viable cause of action against them. Following briefing, on January 22, 2019, the Bankruptcy Court heard oral argument. (Adv. D.I. 100). On February 15, 2019, the Bankruptcy Court issued the Opinion and Interlocutory Order which Defendants now seek leave to appeal. The Bankruptcy Court determined that, consistent with its prior determinations, (1) the Trust could bring a single, consolidated claim against YPF and Repsol for alter ego conduct including asset stripping, adverse domination, and failure to follow corporate formalities, and that (2) the Trust could recover, among other damages, the damages Occidental had been seeking in the New Jersey Litigation. (Op. at 3, 6-9). The Bankruptcy Court also ruled that, with respect to the alleged transfers of all of the Debtors' assets in the first step of the alleged strategy, the Complaint (1) states viable fraudulent conveyance claims, and (2) provided factual allegations that can warrant a determination that the relevant statutes of limitations on those claims did not begin to run until the last act of Defendants' coordinated strategy - the planned filing of a bankruptcy proceeding. (Id. at 9-10).

         By the Motions for Leave, Defendants request that this Court consider their appeal on an interlocutory basis and ...


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