Crystal Oil Co., Matter of

• Decision Date: 01 September 1988
• Docket Number: No. 87-4942,87-4942
• Citation: 854 F.2d 79
• Parties: Bankr. L. Rep. P 72,627 In the Matter of: CRYSTAL OIL COMPANY, Debtor. HALLIBURTON SERVICE, A DIVISION OF HALLIBURTON COMPANY, Appellant, v. CRYSTAL OIL COMPANY, et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 79

854 F.2d 79

Bankr. L. Rep. P 72,627

In the Matter of: CRYSTAL OIL COMPANY, Debtor HALLIBURTON SERVICE, A DIVISION OF HALLIBURTON COMPANY, Appellant, v. CRYSTAL OIL COMPANY, et al., Appellees.

No. 87-4942.

United States Court of Appeals Fifth Circuit.

Sept. 1, 1988.

Eugene R. Preaus, Mark B. Meyers, Robert B. McNeal, New Orleans, La., David Bennett, Dallas, Tex., for appellant.

P. Steven Kratsch, Atlanta, Ga., for Official Committee of Unsecured Creditors.

Keith A. Jones, Washington, D.C., John King, Charles H. Still, Curtis Hugg, Houston, Tex., James Jeter, Fulbright & Jaworski, Shreveport, La., for Crystal Oil.

Jarrell D. McDaniel, Sabrina Cox Little, Houston, Tex., Glenn L. Langley, Shreveport, La., for Bankers Trust Co.

Appeal from the United States District Court For the Western District of Louisiana.

Before GEE, DAVIS and SMITH, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Halliburton Services (Halliburton) appeals the district court's dismissal of its appeal from the bankruptcy court's order confirming a Chapter 11 reorganization of Crystal Oil Company (Crystal). We dismiss the appeal.

I.

In October 1986, Crystal Oil Co. filed a voluntary Chapter 11 bankruptcy petition. Bankers Trust Company (Bankers Trust) was Crystal's senior secured and largest creditor. Crystal owed Bankers Trust $43,000,000 on a note due in 1990; Bankers Trust also faced contingent liability of $32,000,000 on letters of credit it issued to Halliburton and others guaranteeing Crystal's performance on certain contracts. Bankers Trust held a first lien on all of Crystal's oil and gas properties and other assets to secure Crystal's liability on its 1990 note and contractual obligations secured by Bankers Trust's letters of credit. Crystal also owed Halliburton $12,000,000 on a note due in 1987. Halliburton's note was secured by a lien on Crystal's oil and gas properties, but the lien was expressly subordinated to the Bankers Trust lien. In addition, Crystal owed several million dollars to unsecured creditors and faced liability on various kinds of debt and equity securities.

All creditors except Halliburton and Bankers Trust agreed to Crystal's first proposed reorganization plan. As Crystal's senior secured creditor, Bankers Trust held a priority claim for the present value of the collateral securing its loans. The extent of Bankers Trust's priority claim depended on whether the bankruptcy court treated its contingent liability on the letters of credit as a fixed claim entitled to priority status.

In an effort to promote a reorganization plan and resolve the letter of credit dispute, Bankers Trust ultimately made several important concessions that benefitted Halliburton and other creditors. Bankers Trust approved a $2,000,000 payment by Crystal to Halliburton, approved a $4,000,000 payment to unsecured creditors and allowed its rights to be subordinated to the purchasers of certain newly issued debt securities. Bankers Trust also accepted a new note with a lower rate of interest in exchange for its old note. Bankers Trust made these concessions and agreed to an amended plan on the express condition that its contingent letter of credit claim be given priority. All creditors except Halliburton agreed to the amended plan. In December 1986 the bankruptcy court confirmed the amended plan over Halliburton's objection.

Under the confirmed Chapter 11 plan, Bankers Trust and Halliburton each received new notes to replace their old ones and retained their relative lien priorities. The plan also applies eighty-seven percent of Crystal's future available cash flow to Bankers Trust's note. Crystal pays the remaining available cash flow into an escrow account. Bankers Trust was granted a first lien on the escrowed funds to secure its contingent letter of credit obligations; Halliburton received a subordinate lien to secure its note. After the Bankers Trust note is paid in full and the escrow account balance equals the then-outstanding letters of credit, Halliburton will receive 100% of the available cash flow. Halliburton may draw funds from the escrow account immediately, subject to the condition that it replace those funds if this is necessary to indemnify Bankers Trust for losses on the letters of credit.

Despite its objections to the plan, Halliburton did not attempt to stay the bankruptcy court's order pending appeal. The reorganization plan thus became effective in January 1987 and distribution under the plan began. Crystal immediately paid $2,000,000 to Halliburton and $2,500,000 to Bankers Trust. Crystal cancelled $63,000,000 in intercompany debt and paid over $4,000,000 to unsecured creditors. By November 1987, Crystal had issued over $200,000,000 worth of debt and equity securities in exchange for previously outstanding debt and equity obligations. Crystal's new securities were registered with the SEC and were publicly traded by November of 1987. By November 1987, approximately $1,500,000 worth of allowed priority claims were paid or provided for.

In November 1987, the district court granted appellees' motion to dismiss the appeal as moot on grounds that the Chapter 11 plan had been substantially consummated, see 11 U.S.C. Sec. 1101(2), and...