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In re Maxus Energy Corp.

United States District Court, D. Delaware

December 19, 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. No. 19-63-RGA

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

          Robert 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.

          MEMORANDUM

         December 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)[1] ("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

         I. BACKGROUND

         The 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.

         A. Pre-Petition Litigation

         In the 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.

         B. Chapter 11 Cases and Abstention from Occidental's Claims

         On June 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").

         On May 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.

         C. Complaint and Motion for Abstention

         On June 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 state law.

         On 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), [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 Court's judgment.

         Following 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.

         II. JURISDICTION AND LEGAL STANDARDS

         This 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).

         Section 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).[3] 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.

         28 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) provides:[4]

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 appropriate jurisdiction.

         Mandatory 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).

         III. ...


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