Sabine Oil & Gas Corp. v. HPIP Gonzales Holdings, LLC (In re Sabine Oil & Gas Corp.)

• Decision Date: 15 June 2016
• Docket Number: Adversary Proceeding No. 16–01042 SCC, Adversary Proceeding No. 16–01043 SCC,Case No. 15–11835 SCC Jointly Administered
• Citation: 551 B.R. 132
• Parties: In re: Sabine Oil & Gas Corporation, et al., Debtors. Sabine Oil & Gas Corporation, et al., Plaintiffs, v. HPIP Gonzales Holdings, LLC, Defendant. Sabine Oil & Gas Corporation, et al., Plaintiffs, v. Nordheim Eagle Ford Gathering, LLC, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

551 B.R. 132

In re: Sabine Oil & Gas Corporation, et al., Debtors.

Sabine Oil & Gas Corporation, et al., Plaintiffs

v.HPIP Gonzales Holdings, LLC, Defendant.

Sabine Oil & Gas Corporation, et al., Plaintiffs

v.Nordheim Eagle Ford Gathering, LLC, Defendant.

Case No. 15–11835 SCC Jointly Administered

Adversary Proceeding No. 16–01042 SCC

Adversary Proceeding No. 16–01043 SCC

United States Bankruptcy Court, S.D. New York.

Signed June 15, 2016

KIRKLAND & ELLIS LLP, KIRKLAND & ELLIS INTERNATIONAL LLP, 601 Lexington Avenue, New York, NY 10022 By: Jonathan S. Henes, P.C., Christopher Marcus, P.C., 300 North LaSalle, Chicago, IL 60654, By: Ryan Blaine Bennett, Esq., 555 California Street, San Francisco, CA 94104 By: Mark McKane, P.C., 600 Travis Street, Houston, TX 77002 By: Anna Rotman, P.C., Nicolas Thompson, Esq., Counsel to the Debtors

BRACEWELL LLP, 1251 Avenue of the Americas, 49th Floor, New York, NY 10020 By: Robert G. Burns, Esq., 711 Louisiana Street, Suite 2300, Houston, TX 77002 By: William A. (Trey) Wood III, Esq., Jason G. Cohen, Esq., Yvonne Y. Ho, Esq., Counsel to Nordheim Eagle Ford Gathering, LLC

LATHAM & WATKINS LLP, 885 Third Avenue, New York, NY 10022 By: Keith A. Simon, Esq., Paul A. Serritella, Esq., Annemarie V. Reilly, Esq., Counsel to HPIP Gonzales Holdings, LLC

MEMORANDUM DECISION AND ORDER ON (I) MOTIONS FOR STAY PENDING APPEAL AND (II) EXPEDITED REQUESTS FOR CERTIFICATION OF ORDERS FOR DIRECT APPEAL PURSUANT TO 28 U.S.C. § 158(d)(2) AND FED. R. BANKR. P. 8006(f)

SHELLEY C. CHAPMAN, UNITED STATES BANKRUPTCY JUDGE

Before the Court are (i) the motion of Nordheim Eagle Ford Gathering, LLC (“Nordheim”) for an order staying the Court's May 11, 2016 Order Authorizing Rejection of Certain Executory Contracts [Dkt. No. 1082] (the “Rejection Order”) pending Nordheim's appeal of the Rejection Order (the “Rejection Stay Motion”);¹ (ii) Nordheim's expedited request for direct certification to the United States Court of Appeals for the Second Circuit (the “Second Circuit”) of its appeal of the Rejection Order (the “Rejection Certification Request”);² (iii) Nordheim's motion for an order staying the Court's May 11, 2016 Order on Debtors' Motion for Summary Judgment and Nordheim's Motion for Judgment on the Pleadings [Adv. Pro. No. 16–1043, Dkt. No. 22] (the “Nordheim Summary Judgment Order”) pending Nordheim's appeal of the Nordheim Summary Judgment Order (the “Summary Judgment Stay Motion”);³ and (iv) Nordheim's expedited request for direct certification to the Second Circuit of its appeal of the Nordheim Summary Judgment Order (the “Summary Judgment Certification Request”).⁴ On May 24, 2016, HPIP Gonzales Holdings, LLC (“HPIP”) filed a joinder to the Rejection Certification Request (collectively, with the Rejection Certification Request and the Summary Judgment Certification Request, the “Certification Requests”).⁵

Procedural History

This dispute initially arose when the above-captioned debtors (the “Debtors”) filed their Omnibus Motion for Entry of an Order Authorizing Rejection of Certain Executory Contracts pursuant to section 365 of the Bankruptcy Code (the “Rejection Motion”)⁶ seeking to reject the Nordheim Agreements and the HPIP Agreements (each as defined below). By decision dated March 8, 2016 (the “Rejection Decision”),⁷ the Court granted the Rejection Motion, but it concluded that, consistent with the Second Circuit's decision in Orion Pictures Corp. v. Showtime Networks,⁸ in the procedural context of a motion to reject an executory contract, it was unable to make a final determination as to whether the covenants at issue were covenants “running with the land.” Accordingly, in authorizing the rejection of the Nordheim Agreements and the HPIP Agreements, the Court provided its non-binding analysis on the “running with the land” issue, but it noted that further proceedings would be necessary in order to enable the Court to render a binding ruling on the issue.

The Debtors subsequently commenced adversary proceedings against Nordheim and HPIP, respectively, seeking declaratory judgments that the covenants contained in the Nordheim Agreements and the HPIP Agreements do not run with the land. The Debtors moved for summary judgment, and Nordheim and HPIP moved for judgment on the pleadings. On May 3, 2016, the Court issued its Memorandum Decision on (I) Motions of Nordheim Eagle Ford Gathering, LLC and HPIP Gonzales Holdings, LLC for Judgment on the Pleadings and (II) Debtors' Omnibus Motion for Summary Judgment (the “Summary Judgment Decision”),⁹ which (i) granted the Debtors' omnibus motion for summary judgment; (ii) denied the motions of Nordheim and HPIP for judgment on the pleadings; and (iii) held that the covenants at issue do not run with the land either as real covenants or as equitable servitudes. On May 11, 2016, the Court entered the Rejection Order, the Nordheim Summary Judgment Order, and the Order on Debtors' Motion for Summary Judgment and HPIP's Motion for Judgment on the Pleadings (the “HPIP Summary Judgment Order”).¹⁰ Nordheim subsequently filed notices of appeal of the Rejection Order and the Nordheim Summary Judgment Order;¹¹ HPIP filed a notice of appeal of the Rejection Order and the HPIP Summary Judgment Order.¹²

By the Rejection Stay Motion and the Summary Judgment Stay Motion, Nordheim seeks, pursuant to Rules 8007 and 9006(b) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), entry of an order staying the Rejection Order and the Nordheim Summary Judgment Order pending its appeal of such orders. By the Certification Requests, Nordheim requests direct certification of its appeal of the Rejection Order and of its appeal of the Nordheim Summary Judgment Order to the Second Circuit.

The Debtors objected to the Rejection Stay Motion, the Summary Judgment Stay Motion, the Rejection Certification Request, and the Summary Judgment Certification Request.¹³ A hearing on the four motions was held on June 2, 2016 (the “Hearing”).¹⁴

Background

Although the Court assumes familiarity with the prior record of these proceedings, the Rejection Decision, and the Summary Judgment Decision, it will provide some limited factual background for the purposes of this Decision.

One of the Debtors, Sabine Oil & Gas Corporation (“Sabine”), is a party to two contracts with Nordheim, each dated January 23, 2014, relating to the gathering of gas and condensate produced by Sabine from a designated area (together, the “Nordheim Agreements”). Sabine is also party to two contracts with HPIP, one dated May 3, 2013 and the other dated as of May 2014, relating to the gathering, handling, and disposal of oil, gas, and water produced by Sabine from a designated area (together, the “HPIP Agreements”). In the Rejection Decision and the Summary Judgment Decision, the Court summarized many of the central provisions of the Nordheim Agreements and the HPIP Agreements and it incorporates those summaries by reference here.¹⁵

Nordheim and HPIP have argued throughout these proceedings that (i) the Nordheim Agreements and the HPIP Agreements contain real covenants that “run with the land;” or (ii) in the alternative, such agreements contain covenants that are equitable servitudes. Based on the undisputed facts and applicable law, the Court held in the Summary Judgment Decision (consistent with its statements in the Rejection Decision) that the covenants at issue in the Nordheim Agreements and the HPIP Agreements¹⁶ do not run with the land under Texas law either as real covenants or as equitable servitudes.

Discussion

A. Certification Requests

By the Certification Requests, Nordheim argues that because (i) the Rejection Order and the Nordheim Summary Judgment Order and (ii) the Rejection Decision and Summary Judgment Decision “turn[ ] on questions of first impression under Texas law: whether a debtor's contracts dedicating all hydrocarbons attributable to certain acreage to the counterparty's pipeline and gathering systems, and agreeing to pay a transportation fee, create real property interests—either as covenants that run with the land or equitable servitudes,” the Rejection Order and the Nordheim Summary Judgment Order are uniquely suited for direct appeal.¹⁷ The Debtors disagree, arguing that (i) with respect to the Rejection Order, no novel issue of law exists which would support a request for direct certification because the Court's ruling as to the Rejection Order was based solely on its finding that the Debtor properly exercised its business judgment in seeking to reject the Nordheim Agreements and the HPIP Agreements pursuant to section 365 of the Bankruptcy Code and (ii) with respect to the Nordheim Summary Judgment Order, the Court's ruling was dependent on a fact-based, case-specific analysis of the agreements at issue and did not involve pure legal issues of the type that courts have deemed appropriate for direct appeal. As a result, the Debtors submit that direct appeal of the Rejection Order and the Nordheim Summary Judgment Order to the Second Circuit is unwarranted.

Section 158(d)(2)(A) of title 28 of the United States Code states that an appeal may be taken directly to the relevant court of appeals

... if the bankruptcy court, the district court, or the bankruptcy appellate panel involved, acting on its own motion or on the request of a party to the judgment, order, or decree described in such first sentence, or all the appellants and appellees (if any) acting jointly, certify that—

(i) the judgment, order, or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance;

(ii) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or

(iii) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken....

28 U.S.C. § 158(d)(2)(A).¹...