United States District Court, D. Delaware
In re ENERGY FUTURE HOLDINGS CORP., et al., Debtors.
ELLIOTT ASSOCIATES, L.P., ELLIOTT INTERNATIONAL, L.P., THE LIVERPOOL LIMITED PARTNERSHIP, UMB BANK, N.A., AND THE EFH PLAN ADMINISTRATOR BOARD, Appellees. NEXTERA ENERGY, INC, Appellant,
Matthew B. McGuire, LANDIS RATH & COBB LLP, Wilmington,
DE; Andrew Rosenblatt, Eric Daucher (argued), NORTON ROSE
FULBRIGHT U.S. LLP, New York, NY; Attorneys for Appellant.
R. Fay, BAYARD, PA., Wilmington, DE; Gregg M. Galardi
(argued), ROPES & GRAY LLP, New York, NY; Attorneys for
Appellees UMB Bank, N. A., as Indenture Trustee, Elliott
Associates, L.P, Elliott International, L.P., and The
Liverpool Limited Partnership.
M. Madron, RICHARDS, LAYTON & FINGER, PA., Wilmington,
DE; Mark McKane (argued), KIRKLAND & ELLIS LLP, San
Francisco, CA; McClain Thompson, KIRKLAND & ELLIS LLP,
Washington, DC; Attorneys for Appellee the EFH Plan
ANDREWS, U.S. DISTRICT JUDGE
an appeal from an order of the Bankruptcy Court denying
Appellant NextEra Energy's request for $60, 000, 000 in
administrative expenses. The Bankruptcy Court denied
NextEra's request for two independent reasons. First, the
Bankruptcy Court granted summary judgment that NextEra had
relinquished any claim to administrative expenses by
contract. Second, the Bankruptcy Court granted a motion to
dismiss, denying NextEra's administrative expense claims
under 11 U.S.C. § 503(b)(1)(A).
Bankruptcy Court had jurisdiction under 28 U.S.C.
§§ 157 and 1334(b). This Court has appellate
jurisdiction pursuant to 28 U.S.C. § 158(a)(1).
instant dispute arises out of an effort by NextEra to assert
an administrative expense claim with respect to its failed
attempt to purchase an interest in Oncor Electric Delivery
Company from Debtors Energy Future Holdings Corporation and
Energy Future Intermediate Holding Company LLC. Debtors had
marketed their roughly 80% economic interest in Oncor after
initiating Chapter 11 bankruptcy proceedings. (D.I. 1-2 at
3-4). On July 29, 2016, Debtors executed the Merger Agreement
with NextEra under which NextEra would purchase Debtors'
economic interest in Oncor. (Id). The Merger
Agreement provided that NextEra would pay Debtors'
estates $9.5 billion (subsequently increased to $9.8 billion)
in consideration. (D.I. 26 at ¶ 515).
transaction required the approval of the Public Utility
Commission of Texas ("PUCT"). Consequently, Oncor
and NextEra submitted their joint change of control
application for approval to PUCT on October 31, 2016. (D.I.
1-2 at 5). The application asked PUCT to eliminate certain
requirements that were part of a regulatory
"ring-fence." (Id.). NextEra considered
these requirements "deal killers" and when PUCT
denied the application citing, among other things, those
requirements, NextEra began a series of ineffective rehearing
requests and appeals. (Id. at 5-6). Despite
PUCT's repeated rejections, NextEra did not seek to
terminate the Merger Agreement, leaving the Oncor interests
unsold while Debtors incurred about $50 million in interest
payments and professional fees per month. (See Id .
at 6-7; D.I. 24 at 30 n.17; D.I. 33 at 30). After several
months of these payments and with no chance of PUCT's
approval of the change of control application, Debtors
terminated the Merger Agreement and turned their efforts
toward closing an agreement with a different purchaser. (D.I.
1-2 at 7-8).
Merger Agreement required Debtors to pay NextEra a
termination fee of $275 million under specific circumstances.
As originally approved by the Bankruptcy Court, the
termination fee provision triggered the payment of the fee if
NextEra failed to ultimately obtain the Debtors' interest
in Oncor and instead Debtors sold that interest to another
party. (D.I. 24 at 7). The fee was subject to certain
exceptions, one of which was that, if PUCT declined to
approve the merger, and NextEra terminated the agreement, the
fee would not be owed. If PUCT declined to approve the merger
and the Debtors terminated the agreement, however, then the
fee would be owed. The provision did not set a deadline by
which PUCT approval had to be secured. In re Energy
Future Holdings Corp., 904 F.3d 298, 304 (3d Cir. 2018),
cert, denied, 139 S.Ct. 1620 (2019). The lack of a
deadline meant that NextEra had no incentive to terminate the
agreement and instead had motivation to continue to appeal,
however futile, until Debtors were forced to terminate the
agreement and to trigger the fee. Id.
application made in July 2017, the Bankruptcy Court
reconsidered its earlier approval of the termination fee
provision. It found that it '"had a fundamental
misunderstanding of the critical facts when it initially
approved the termination fee' because it was unaware that
the Merger Agreement did not set a date by which PUCT
approval had to be obtained." In re Energy Future
Holdings Corp., 904 F.3d at 311 (cleaned up). The
Bankruptcy Court amended its approval order to state that if
PUCT denied approval, the fee would not be triggered
"regardless of whether the Debtors or NextEra
subsequently terminate[d] the Merger Agreement."
Id. at 307. This meant that NextEra did not receive
the termination fee.
the litigation about the reconsideration of the termination
fee was pending appeal, NextEra filed an application for
administrative expenses seeking reimbursement of $60 million
of out-of-pocket expenses incurred in its efforts to
consummate the Merger Agreement. (D.I. 24 at 14; see
D.I. 26 at ¶ 512-A534). Appellees filed a joint motion
for summary judgment and to dismiss NextEra's
administrative expense application. (D.I. 24 at 14). The
Bankruptcy Court, on August 1, 2018, granted the summary
judgment motion, finding that, under the "plain language
of the Merger Agreement, " NextEra was barred from
seeking an administrative expense claim regarding any work
performed relating to the failed NextEra transaction. (D.I.
1-2 at 28). Alternatively, the Bankruptcy Court held that
NextEra did not state a claim for administrative expenses
under either 11 U.S.C. § 503(b)(1)(A) or (b)(3)(D),
regardless of the interpretation of the Merger Agreement, and
thus granted the motion to dismiss. (Id.). NextEra
appealed to this Court. (D.I. 1). It challenges the summary
judgment ruling and the motion to dismiss ruling as to
subsection (b)(1)(A) but not as to (b)(3)(D). I agree with
the motion to dismiss ruling and therefore do not need to
address the summary judgment ruling.