EDGE PETROLEUM OPERATING v. Duke Energy Trading
| Decision Date | 09 May 2003 |
| Docket Number | No. CIV.A. H-02-1906.,CIV.A. H-02-1906. |
| Citation | 312 B.R. 139 |
| Parties | EDGE PETROLEUM OPERATING COMPANY, INC., Plaintiff, v. DUKE ENERGY TRADING & MARKETING, L.L.C., Defendant. |
| Court | U.S. District Court — Southern District of Texas |
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Barry Allan Brown, Attorney at Law, Houston, TX, for Plaintiff.
John Carlton Wynne, Andrews & Kurth LLP, Houston, TX, for Defendant.
Pending before the Court is Plaintiff Edge Petroleum Operating Company, Inc.'s ("Edge") Motion for Remand (Dkt.# 4). Having considered the parties' arguments, responses, and applicable law, the Court is of the opinion that the motion should be DENIED.
Edge is a producer of natural gas. Through an agent, Edge sold natural gas to one or more entities (the "Debtors") who then resold the gas to Duke Energy Trading & Marketing, L.L.C. ("Duke"). Duke made payments to the Debtors that it believed were payments for gas it had purchased. However, Duke believed that it overpaid the Debtors for some shipments. Therefore, Duke withheld money from later payments as part of a self-help strategy to recoup the alleged overpayments.
The Debtors then began to file for bankruptcy. Edge alleges that the Debtors never paid it for gas produced and delivered to the Debtors in May and June 2001. Edge further alleges that it has a lien on the proceeds of any sale of the gas by Debtors to a subsequent purchaser, such as Duke. The parties dispute who currently has possession of such proceeds. Edge brought suit against Duke in Texas state court to recover any portion of these proceeds that may be in Duke's possession. Duke claims that it has already given all of the proceeds to the Debtors and has filed claims in the bankruptcy proceedings to recover the rest of its alleged overpayments.
On March 4, 2002, Aurion Technologies, one of the entities involved in the gas deliveries and payments, filed a voluntary petition for bankruptcy. Then, on May 17, 2002, Duke removed the state court action between Edge and itself on the grounds that it was related to the Debtors' bankruptcy actions. On May 23, 2002, Edge moved for remand of this action to state court.
Edge contends that this case should be remanded for any of three reasons. First, it argues that this action is not "related to" the Debtors' bankruptcies, so there is no federal subject matter jurisdiction. Second, Edge argues that the removal was improper because it was untimely. Third, Edge believes that this Court should abstain from hearing the case. The Court will examine each of these arguments in turn.
Removal of a case from state to federal court is permissible if the federal court would have had jurisdiction over the case at the time of removal. See 28 U.S.C. § 1441. Federal law provides generally that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a).
Duke removed this case pursuant 28 U.S.C. § 1452 which pertains to the removal of claims related to bankruptcy cases. Section 1452 allows a party to remove a case to federal court if the district court has jurisdiction of the cause of action under 28 U.S.C. § 1334. See 28 U.S.C. § 1452(a). Section 1334 gives the federal district courts exclusive jurisdiction of cases under title 11, see 28 U.S.C. § 1334(a), and non-exclusive jurisdiction of all civil proceedings arising under title 11, arising in cases under title 11, or related to cases under title 11, see 28 U.S.C. § 1334(a). Since this case is not a case under title 11, removal of this case to federal court is only proper if it is a civil proceeding arising in or related to a case under title 11.
Duke argues that this civil proceeding is related to the title 11 bankruptcy cases filed by the Debtors. Civil proceedings which are "related to" a bankruptcy for removal purposes include: "(1) causes of action owned by the debtor which become property of the estate pursuant to 11 U.S.C. § 541, and (2) suits between third parties which have an effect on the bankruptcy estate." Celotex Corp. v. Edwards, 514 U.S. 300, 308 n. 5, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995); accord Arnold v. Garlock, Inc., 278 F.3d 426, 434 (5th Cir.2001). Duke claims that the proceeds, regardless of who has possession of them, are property of the Debtors' estates, so that any determination involving the disposition of the proceeds would have an effect on the bankruptcy estates. Therefore, this action would be the second type of "related to" proceeding set out by the Supreme Court.
Within the Fifth Circuit, the test for whether a proceeding properly invokes federal bankruptcy "related to" jurisdiction is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. Arnold, 278 F.3d at 434 (citing In re Canion, 196 F.3d 579, 585 (5th Cir. 1999)). The test is just whether an effect is possible; certainty, or even likelihood of such an effect is not a requirement. Id. Thus, an action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and in any way impacts upon the handling and administration of the bankrupt estate. Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746, 752 (5th Cir. 1995). If this action affects property owned by the Debtors, even if Edge is a valid creditor with a claim to that property, the disposition of that property impacts the estates' ability to manage its own property and this action is "related to" the Debtors' bankruptcies.
Duke contends that the proceeds at issue must be property of the Debtors. The provision of the Texas Business & Commerce Code cited by Edge for the proposition that it has a lien on the proceeds, § 9.3431 provides an automatically perfected lien on the proceeds "owned by, received by, or due to the first purchaser" of oil or gas. TEX. BUS. & COM. CODE § 9.343. Assuming that Edge is correct that it has a producer's lien as security for its sale of gas to the Debtors, that lien only attaches to proceeds that belong to the Debtors as the first purchasers. Duke may have possession of such proceeds if they are still due to the first purchasers, but that doesn't change the fact that they are property of the Debtors in the form of accounts receivable. It is the very connection to the Debtors that gives rise to Edge's security interest in the proceeds under the statutory provision.
Accordingly, Edge is seeking to enforce its security interest in property owned by the Debtors that may be in Duke's possession. Such an action impacts the bankruptcy estates and is therefore "related to" the bankruptcy cases.
Next, Edge argues that Duke's removal was improper because it was untimely. The timeliness of the removal of an action that is related to a bankruptcy proceeding is governed by Federal Rule of Bankruptcy Procedure 9027. Rule 9027 provides that if the civil action is initiated after the commencement of the bankruptcy case, the notice of removal must be filed within 30 days of receiving either the complaint, or the summons if the complaint did not accompany the summons. See FED. R. BANKR. P. 9027(a)(3). Alternatively, if the civil action was initiated before commencement of the bankruptcy case, the notice of removal must be filed within the longest of 90 days of the order for relief2, 30 days of an order terminating a stay, or 30 days after the qualification of a chapter 11 trustee but not later than 180 days after the order for relief. See FED. R. BANKR. P. 9027(a)(2).
Duke concedes that it failed to file the notice of removal within the time period applicable for the bankruptcy cases that were already underway at the time Edge filed the current action. However, Duke does argue that it met the test set out in Rule 9027(a)(2) for removing actions related to bankruptcy cases initiated after the civil action. This civil action was originally filed on September 5, 2001. Then, on March 4, 2002, Aurion Technologies ("Aurion"), one of the Debtors, filed a voluntary petition for bankruptcy. Duke filed its notice of removal on May 17, 2002, within 90 days of the order for relief in the Aurion bankruptcy case.
Edge contends that the current action is not "related to" the Aurion bankruptcy case, making it irrelevant that Duke filed its notice of removal within 90 days of the order for relief in that particular case. Duke claims that Aurion received money from Duke in payment for gas deliveries during the relevant time period. It appears that Duke and Aurion disagree about whether these funds belong to Aurion or to Duke.3 Edge is also contesting whether payments made by Duke to the various Debtors constitute payments for gas deliveries, which would belong to the Debtors as proceeds of a sale by a first purchaser subject to Edge's lien, or were monies paid that can not legally constitute payments for gas deliveries given the timing of the payments, which would belong to Duke even though they are in Aurion's possession. Therefore, both cases involve the same determination of the character of the funds paid by Duke to the Debtors, including Aurion, in order to determine who owns the money. A determination of whether the money is or is not property of Aurion could have a conceivable effect on Aurion's bankruptcy estate, either positively or negatively. Therefore, this action is sufficiently "related to" Aurion's bankruptcy case to find that Duke satisfied Rule 9027(a)(2) and Duke's removal was timely.
Edge believes that even if this action is related to a bankruptcy proceeding and was timely...
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In re Babekov, Case No. 1-07-43574-dem (Bankr. E.D.N.Y. 5/5/2009)
...is the filing of the petition under section 301 or 302. 11 U.S.C. §102(6). See also Edge Petroleum Operating Co., Inc. v. Duke Energy Trading & Marketing, L.L.C., 312 B.R. 139, 144 (S.D.Tex., 2002). Here the defendants argued that the plaintiff's removal action is in violation of the automa......