United States District Court, D. Delaware
In re MAXUS ENERGY CORPORATION, et al, Debtors.
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. No. 19-63-RGA
E. Farnan, Esq., Michael J. Farnan, Esq., Farnan LLP,
Wilmington, DE, attorneys for plaintiff Maxus Liquidating
J. Dehney, 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 Lemons, Esq., Weil Gotshal & Manges LLP,
New York, NY, attorneys for Repsol.
W, 2019 Pending before the Court is the Motion for Leave to
file interlocutory appeal from a Bankruptcy Court decision,
Maxus Liquidating Trust v. YPF S.A., et al. (In re Maxus
Energy Corp.), 597 B.R. 235 (Bankr. D. Del.
2019) ("Opinion") and accompanying
Order (Adv. D.I. 112) ("Order"), which denied
Repsol's Motion for Abstention (Adv. D.I. 32, 36) in the
above-captioned adversary proceeding. On February 25, 2019,
the Bankruptcy Court entered the Order. On March 11, 2019,
Repsol filed its Motion for Leave to file interlocutory
appeal from the Order. (D.I. 1). On March 15, 2019, the
Bankruptcy Court issued the amended Opinion. On March 29,
2019, and with consent of plaintiff Maxus Liquidating Trust
(the "Trust"), Repsol filed a Supplement to their
Motion for Leave. (D.I. 6). The Trust has filed its
opposition, and the Motion for Leave is fully briefed. (D.I.
7, 8). The Court did not hear oral argument because the facts
and legal arguments are adequately presented in the briefs
and record, and the decisional process would not be
significantly aided by oral argument. For the reasons set
forth below, the Court will deny the Motion for Leave
Motion for Abstention is directed at the Trust's
complaint (Adv. D.I. 1) concerning environmental liabilities
of the bankrupt energy firm Maxus Energy Corporation
("Maxus" or "Debtor"). The background
facts are set forth in the Opinion and only briefly
summarized herein. Maxus, 597 B.R. at 239-43.
mid-1980s, Debtors sold their chemicals business to
Occidental Chemical Corporation through a stock sale. The
business was sold amidst health concerns about Debtors'
plant in northern New Jersey. Just a few years earlier, the
EPA declared that plant - and three other related locations -
a superfund site and placed the site on its National
Priorities List. Dioxin, a byproduct of the Agent Orange the
plant manufactured, had been contaminating the area.
Occidental sought indemnification through the stock sale. The
clean-up effort was ongoing when, in 2005, the State of New
Jersey sued Maxus, its parents, and Occidental in New Jersey
Superior Court ("New Jersey Court") for their role
in polluting the site ("New Jersey Action").
Occidental cross-claimed against Maxus for indemnification
under the stock sale. Occidental also alleged that Maxus, its
affiliate Tierra Solutions, Inc., YPF SA. (parent of Maxus)
and Repsol S.A. (grandparent of Maxus) were alter egos of
each other. Maxus asserted various causes of action based on:
(1) alter ego (declaratory relief), (2) breach of contract
and contractual indemnification, (3) fraudulent transfers,
(4) unjust enrichment, (5) tortious interference with
contract, (6) civil conspiracy, (7) statutory contribution
for environmental liabilities, and (8) fiduciary duty-based
claims (collectively, the "New Jersey Claims").
Maxus, arguing that it was being scapegoated, impleaded
hundreds of entities for polluting the site and contributing
to its degradation. After nearly ten years, New Jersey
settled with the parties, and Occidental agreed to pay $190
million. Other litigation continued.
Chapter 11 Cases and Abstention from
17, 2016, Maxus filed for bankruptcy, with Occidental as its
largest creditor. The New Jersey Claims were removed to the
United States Bankruptcy Court for the District of New Jersey
and transferred to the Delaware Bankruptcy Court. Repsol
moved the Bankruptcy Court to abstain from hearing the New
Jersey Claims and remand those proceedings to the New Jersey
Court. The Bankruptcy Court granted Repsol's abstention
and remand motion under both mandatory and permissive
abstention. In re Maxus Energy Corp., 560 B.R. Ill.
121 (Bankr. D. Del. 2016). For mandatory abstention to apply
under 28 U.S.C. § 1334(c)(2), six separate factors must
be met, including that the matter is non-core, such that it
is related to a bankruptcy proceeding but neither arises
under title 11 nor in a case under title 11. With respect
this factor, the Bankruptcy Court determined that the alter
ego-based claims were non-core, as they "do not invoke a
substantive right provided by title 11, nor are they part of
a proceeding - even when analyzed separately from the N.J.
Environmental Claims - that could only arise in the context
of a bankruptcy case." Maxus, 560 B.R. at 122.
Occidental moved for clarification as to whether it or the
Debtors owned the alter ego-based claims. The Bankruptcy
Court found that "[a]s a matter of controlling law, the
claims are property of debtors' estates." In re
Maxus Energy Corp., 571 B.R. 650, 658 (Bankx. D. Del.
2017) ("Clarification Opinion").
22, 2017, the Bankruptcy Court confirmed Maxus' Chapter
11 Plan, which created the Trust and vested it with the
authority to pursue the Debtors' causes of action.
(B.D.I. 1231). On November 1, 2017, the Trust moved to
intervene in the New Jersey Action as of right. On November
17, 2017, the New Jersey Court granted the motion, ordering
that the Trust "shall be treated as a party in this
matter for all purposes." From then on, the Trust would
bear the burden of litigation and of distributing to
creditors any recovery, which would have otherwise inured to
Occidental alone. Immediately thereafter, on November 22,
2017, the New Jersey Court entered final judgment on all of
the New Jersey Claims in favor of Repsol, dismissing
OCC's claims, including those for unjust enrichment,
alter ego, fraudulent transfer, and civil conspiracy. On
January 8, 2018, the Trust appealed the final judgment, and
the appeal is pending. That appeal has divested the trial
court of jurisdiction over the matter. Thus, the Trust is
blocked from litigating in the New Jersey Court unless the
appellate court remands and revives jurisdiction.
Complaint and Motion for Abstention
14, 2018, the Trust filed the Complaint, which asserts
twenty-three counts based on the same transactions,
occurrences, and allegations that Occidental had asserted and
lost in the New Jersey Action. The claims are against Repsol
as well as YPF. As Occidental had previously asserted, the
crux of the Trust's Complaint is that, for twenty years,
Maxus' parents acted together to rob Maxus of its assets
and leave third parties and taxpayers on the hook for its
environmental liabilities. The Trust asserts fraudulent
transfer claims ("544 Claims") under the Uniform
Fraudulent Transfer Act of several states and under
§§ 544 and 550 of the Bankruptcy Code. The Trust
further asserts claims of unjust enrichment, alter ego, and
civil conspiracy ("Non-544 Claims") only under
September 10, 2018, Repsol filed the Motion for Abstention,
arguing that the Non-544 Claims were subject to mandatory
abstention under 28 U.S.C. § 1334(c)(2),  while all counts
were subject to permissive abstention. Additionally, the
Motion for Abstention argued the Bankruptcy Court must
abstain due to its lack of jurisdiction under the
Rooker-Feldman doctrine. Repsol argued that the
Bankruptcy Court should not hear the Complaint because the
Trust is using it to get around or disturb the New Jersey
briefing and oral argument (Adv. D.I. 100), the Bankruptcy
Court denied the Motion for Abstention in its entirety. With
respect to mandatory abstention, the Bankruptcy Court
determined that it was not applicable because the Non-544
Claims were core and because the required state court action
had not been commenced. Maxus, 597 B.R at 242-46. In
reaching this conclusion, the Bankruptcy Court held,
"The New Jersey suit does not suffice because Occidental
only sought relief for wrongs committed against itself. Here,
the Trust sues on behalf of all creditors for 'all
damages' that they have sustained. While the state suit
may eventually be enlarged to cover the relief sought here,
such change is speculative. Thus, for purposes of mandatory
abstention, a state action had not been commenced."
Id. at 240. The Bankruptcy Court further determined
not to permissively abstain as doing so would complicate and
potentially compromise the creditors' recovery. See
Id. at 246-50. "Were the Court to abstain,"
the Bankruptcy Court concluded, "the Trust would have to
wait and see if it could litigate the alter ego, unjust
enrichment, and conspiracy claims in New Jersey. And if the
New Jersey appellate court does not remand, the Trust may be
unable to do so. Therefore, abstention would stymie the
Trust's efforts to recover for creditors."
Id. at 240-41. Addressing the
Rooker-Feldman doctrine, the Bankruptcy Court
observed that the "narrow doctrine" is
"concerned only with prohibiting federal courts from
reviewing state court decisions" and such
'"review differs from mere attempts to litigate in
federal court a matter previously litigated in state
court.'" Id. at 241 (quoting In re
Philadelphia Entm 't & Dev. Partners, 879 F.3d
492, 500 (3d Cir. 2018)). The Bankruptcy Court held that the
doctrine did not mandate abstention, as Repsol's position
boiled down to just such a re-litigation argument. See
Id. at 250-52.
JURISDICTION AND LEGAL STANDARDS
Court has jurisdiction to hear appeals "with leave of
the court, from interlocutory orders and decrees, of
bankruptcy judges entered in cases and proceedings referred
to the bankruptcy judges under section 157 of this
title." 28 U.S.C. § 158(a)(3). The parties do not
dispute that the Order is interlocutory. Appeals of decisions
not to exercise mandatory abstention pursuant to 28 U.S.C.
§ 1334(c)(2) are permitted under 28 U.S.C. §
1334(d). In re Seven Fields Development Corp., 505
F.3d 237, 249 (3d Cir. 2007).
158(a) does not identify the standard district courts should
use in deciding whether to grant such an interlocutory
appeal. See Id. "Typically, however, district
courts follow the standards set forth under 28 U.S.C. §
1292(b), which govern interlocutory appeals from a district
court to a court of appeals." In re AE Liquidation,
Inc., 451 B.R. 343, 346 (D. Del. 2011). Under the
standards of § 1292(b), an interlocutory appeal is
permitted only when the order at issue (1) involves a
controlling question of law upon which there is (2)
substantial ground for difference of opinion as to its
correctness, and (3) if appealed immediately, may materially
advance the ultimate termination of the litigation.
See 28 U.S.C. § 1292(b); Katz v. Carte
Blanche Corp., 496 F.2d 747, 754 (3d Cir. 1974).
Entertaining review of an interlocutory order under §
1292(b) is appropriate only when the party seeking leave to
appeal "establishes exceptional circumstances [to]
justify a departure from the basic policy of postponing
review until after the entry of final judgment." In
re Del. & Hudson Ry. Co., 96 B.R. 469, 472-73 (D.
Del. 1989), aff'd, 884 F.2d 1383 (3d Cir. 1989).
In part, this stems from the fact that "[p]iecemeal
litigation is generally disfavored by the Third
Circuit." In re SemCrude, I.P., 2010 WL
4537921, at *2 (D. Del. Oct. 26, 2010) (citing In re
White Beauty View, Inc., 841 F.2d 524, 526 (3d Cir.
1988)). Further, leave for interlocutory appeal may be denied
for "entirely unrelated reasons such as the state of the
appellate docket or the desire to have a full record before
considering the disputed legal issue." Katz,
496 F.2d at 754.
U.S.C. § 1334 governs federal courts' jurisdiction
over claims and mandates that the federal court abstain from
hearing non-core bankruptcy matters concerning state-law
issues under certain circumstances. Referred to as the
mandatory abstention provision, section 1334(c)(2)
Upon timely motion of a party in a proceeding based upon a
State law claim or State law cause of action, related to a
case under title 11 but not arising under title 11 or arising
in a case under title 11, with respect to which an action
could not have been commenced in a court of the United States
absent jurisdiction under this section, the district court
shall abstain from hearing such proceeding if an action is
commenced, and can be timely adjudicated, in a State forum of
abstention requires that all six of the following elements
are met: (1) the motion to abstain was timely brought; (2)
the underlying action or proceeding pending in federal court
is based upon a state law claim or cause of action; (3) the
matter is non-core, such that it is related to a bankruptcy
proceeding, but neither arises under title 11 nor in a case
under title 11; (4) section 1334 is the sole basis for
federal jurisdiction; (5) an action is commenced in state
court; and (6) the action can be timely adjudicated in state
court. See In re Longview Power, LLC, 516 B.R. 282,
293-94 (Bankr. D. Del. 2014). Section 1334(c) reflects a
congressional judgment that parties wishing to litigate a
state claim in state court but finding themselves in
bankruptcy court purely "because the controversy is
related to a bankruptcy, should be able to insist upon a
state adjudication if that will not adversely affect the
bankruptcy proceedings." Stoe v. Flaherty, 436
F.3d2O9, 2l4(3dCir. 2006).