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In re Energy Future Holdings Corp.

United States District Court, D. Delaware

September 30, 2019

In re ENERGY FUTURE HOLDINGS CORP., et al., Debtors.

          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.

          Erin 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.

          Jason 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 Administrator Board.



         This is 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).


         The 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).


         The 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).[1]

         The 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).

         The 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.

         Upon 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.

         While 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.

         III. ...

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