626 F.3d 699 (2nd Cir. 2010), 08-4196-cv (L), AEP Energy Services Gas Holding Co. v. Bank of America, N.A.

Docket Nº:08-4196-cv (L), 08-4671-cv (XAP).[*]
Citation:626 F.3d 699
Opinion Judge:SACK, Circuit Judge:
Party Name:AEP ENERGY SERVICES GAS HOLDING COMPANY, Houston Pipe Line Company LP, HPL Resources Company LP, Plaintiffs-Counter-Defendants-Appellants-Cross-Appellees, v. BANK OF AMERICA, N.A., as Administrative Agent, as Master Swap Counterparty, as Secured Party, and as Purchaser, The Bank of New York, as Trustee of the Bammel Gas Trust, Defendants-Countercla
Attorney:Ira M. Feinberg, Hogan & Hartson, LLP (Jenny Rubin Robertson, Toby W. Smith, of counsel; David Dunn, Frank T. Spano, on the briefs) New York, N.Y., for Plaintiffs-Counter-Defendants-Appellants-Cross-Appellees. Aaron Rubinstein, Kaye Scholer LLP (Robert Grass, W. Stewart Wallace, Lee M. Cortes, Jr...
Judge Panel:Before: JACOBS, Chief Judge, SACK and LYNCH, Circuit Judges.
Case Date:October 29, 2010
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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626 F.3d 699 (2nd Cir. 2010)

AEP ENERGY SERVICES GAS HOLDING COMPANY, Houston Pipe Line Company LP, HPL Resources Company LP, Plaintiffs-Counter-Defendants-Appellants-Cross-Appellees,

v.

BANK OF AMERICA, N.A., as Administrative Agent, as Master Swap Counterparty, as Secured Party, and as Purchaser, The Bank of New York, as Trustee of the Bammel Gas Trust, Defendants-Counterclaimants-Appellees-Cross-Appellants.

Nos. 08-4196-cv (L), 08-4671-cv (XAP). [*]

United States Court of Appeals, Second Circuit

October 29, 2010

Argued: Sept. 29, 2009.

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Ira M. Feinberg, Hogan & Hartson, LLP (Jenny Rubin Robertson, Toby W. Smith, of counsel; David Dunn, Frank T. Spano, on the briefs) New York, N.Y., for Plaintiffs-Counter-Defendants-Appellants-Cross-Appellees.

Aaron Rubinstein, Kaye Scholer LLP (Robert Grass, W. Stewart Wallace, Lee M. Cortes, Jr., of counsel; Margot B. Schonholtz, Jeffrey A. Fuisz, on the briefs), New York, N.Y., for Defendants-Counterclaimants-Appellees-Cross-Appellants.

Before: JACOBS, Chief Judge, SACK and LYNCH, Circuit Judges. [**]

SACK, Circuit Judge:

This action stems from a dispute over the rights to natural gas stored in the

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Bammel Gas Storage Facility, an underground gas reservoir located in Texas. The plaintiffs, AEP Energy Services Gas Holding Company (" AEP" ), Houston Pipe Line Company LP (" HPL" ), and HPL Resources Company LP (" HPLR" ) (hereinafter sometimes collectively the " plaintiffs" ) entered into a complex series of transactions with Enron Corporation or affiliates thereof (hereinafter collectively " Enron" ), Bank of America, and the Bank of New York with respect to the right to use certain natural gas and assets contained in the Bammel Gas Storage Facility. The Bammel Gas Storage Facility is owned by the Bammel Gas Trust, a special-purpose entity formed and owned in equal part by Enron and Bank of America, of which the Bank of New York is Trustee.

After Enron entered bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York in December 2001, Bank of America and the Bank of New York attempted to repossess the gas contained in the Bammel Gas Storage Facility, purportedly pursuant to the terms of the operating agreements among the parties. The plaintiffs refused. Instead, they brought suit against the two banks in the United States District Court for the Southern District of Texas (the " Texas District Court" ) alleging a superior right to continue to use the gas. Bank of America responded by counterclaiming against the plaintiffs for conversion, breach of bailment agreement, and replevin, asserting a superior secured interest in the gas that had vested upon Enron's bankruptcy. Following the approval by the Bankruptcy Court of a settlement agreement among Enron, Bank of America, and the Bank of New York relating to the Bammel Gas transaction at issue in this appeal, the Texas District Court severed the plaintiffs' declaratory claims from their non-declaratory claims, which were based on tort and contract theories, and transferred the declaratory claims, and Bank of America's related counterclaims, to the United States District Court for the Southern District of New York (the " New York District Court" ). The Texas District Court retained the plaintiffs' non-declaratory claims and Bank of America's related counterclaims.

Upon this transfer, over the plaintiffs' objections and contrary to the express intention of the Texas District Court, the New York District Court adjudicated the entire controversy, including the non-declaratory claims and counterclaims that had been retained by the Texas District Court. Then, in a series of rulings, the New York District Court granted defendant Bank of America's motion for summary judgment as to both the plaintiffs' declaratory claims and non-declaratory claims, and Bank of America's counterclaims, and awarded damages to Bank of America on its counterclaims in the amount of $345,675,000 plus prejudgment interest. At the same time, the district court denied the plaintiffs' motions filed during the pendency of the summary judgment proceedings to amend the complaint and to postpone a decision on the summary judgment motions in order to permit the conduct of further depositions.

We agree with the district court with respect to the grant of summary judgment as to the declaratory claims and related counterclaims, which had been properly transferred by the Texas District Court to New York, and as to the denial of the plaintiffs' motions to amend and to allow them to take further depositions. We conclude, however, that adjudication of the nondeclaratory claims by the New York District Court was an abuse of discretion. The Texas District Court-in which the claims were first filed-expressed a clear intention to retain the nondeclaratory claims and no special circumstances were

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present to outweigh the presumption in favor of the first-filed jurisdiction; therefore, the New York District Court should have declined to consider them. Having so determined, we vacate the summary judgment with respect to the non-declaratory claims, which we conclude should be adjudicated in Texas.

BACKGROUND

The relevant facts are rehearsed in detail in the district court's four lengthy and careful opinions in this case. See AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 2007 WL 2428474, 2007 U.S. Dist. LEXIS 63421 (S.D.N.Y. Aug.28, 2007) (" AEP I " ); AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 2007 WL 4458117, 2007 U.S. Dist. LEXIS 93022 (S.D.N.Y. Dec.18, 2007) (" AEP II " ); AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 2008 WL 925433, 2008 U.S. Dist. LEXIS 30587 (S.D.N.Y. Apr.2, 2008) (" AEP III " ); AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 2008 WL 3338203, 2008 U.S. Dist. LEXIS 61264 (S.D.N.Y. Aug.11, 2008) (" AEP IV " ). They are set forth here only insofar as we think it necessary for an understanding of our resolution of this appeal. We construe the evidence in the light most favorable to the plaintiffs, as the non-moving parties, and draw all reasonable inferences in their favor. See, e.g., SCR Joint Venture L.P. v. Warshawsky, 559 F.3d 133, 137 (2d Cir.2009).

The 1997 Transaction

In November 1997, Enron,1 in an effort to generate off-balance-sheet capital before the end of the year, entered into a series of interrelated agreements (the " Operative Agreements" ) with Bank of America (" BofA" ) and the Bank of New York as trustee (" BONY" or the " Trustee" ), among other entities, to monetize the natural gas owned by Enron's then-wholly owned subsidiary HPL. At that time, HPL owned and operated an underground natural gas storage reservoir in Harris County, Texas, called the Bammel Gas Storage Facility (the " Storage Facility" ). HPL and its own subsidiary, HPLR, owned approximately 80 billion cubic feet (" Bcf" ) 2 of natural gas kept in the Storage Facility (the " Storage Gas" ).

In order to achieve its goal of off-balance-sheet financing, Enron and BofA's predecessor in interest in this transaction, NationsBank, N.A.,3 created the Bammel Gas Trust (" BGT" or the " Trust" ), a special-purpose entity that was owned in equal parts by the two entities. BONY was designated to act as the Trustee of BGT.

Following the creation of BGT, Enron caused HPL and HPLR to sell the Storage Gas to BGT for a purchase price of $232 million. The sale was pursuant to a Storage Gas Sale Agreement, which stated, among other things, that the agreement would " serve as a bill of sale for the Storage Gas without the necessity of having

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any separate bill of sale or other evidence of the transfer of the Ownership of the Storage Gas" from HPL to BGT, and that BONY, as Trustee of BGT, would be " deemed to have taken delivery of the Storage Gas" as of the date of purchase. Storage Gas Sale Agreement dated December 30, 1997 (" 1997 Sale Agreement" ) §§ 2.03, 2.04, Exh. H to the Declaration of Aaron Rubinstein in Support of Defendants' Motion for Summary Judgment (" Rubinstein Decl." ), AEP Energy Gas Servs. Holding Co. v. Bank of Am., N.A., No. 05 Civ. 4248 (S.D.N.Y. Aug. 28, 2006). See generally Participation Agreement dated December 30, 1997 (" 1997 Participation Agreement" ), Exh. A to Rubinstein Decl.

To fund this purchase, BofA (through its affiliate, Kitty Hawk Funding) loaned BGT approximately $218 million, and BofA and Enron each injected approximately $7 million of equity into BGT, with Enron's equity contribution also financed by BofA.4 As collateral for the loan, BONY, the Trustee of BGT, granted BofA a security interest in all of the assets held in the Trust, including the Storage Gas, pursuant to a Security Agreement. See Security Agreement dated December 30, 1997 (" 1997 Security Agreement" ) § 3, Exh. B to Rubinstein Decl.

Concurrently with this transaction, BGT granted HPL and HPLR continued use of the Storage Gas and the Storage Facility under a Pressurization and Storage Gas Borrowing Agreement (the " Pressurization Agreement" ) in exchange for the payment of " pressurization fees" to BGT, which BGT then used to pay the interest on the BofA loan. Pursuant to this agreement, HPL and HPLR could use the Storage Gas to pressurize the Storage Facility, in order to facilitate the storage and withdrawal of other customers' natural gas; HPL and HPLR could also borrow and withdraw up to a certain quantity of the Storage Gas for other working uses, subject to replacement.

The Pressurization Agreement provided that title to and ownership of the Storage Gas remained with the...

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