Houston Pipeline Co. v. Bank of America
| Decision Date | 24 August 2006 |
| Docket Number | No. 01-03-01263-CV.,01-03-01263-CV. |
| Parties | HOUSTON PIPELINE COMPANY LP, Appellant, v. BANK OF AMERICA, N.A., Appellee. |
| Court | Texas Court of Appeals |
Anne Pike, Eric J.R. Nichols, John S. Adcock, David M. Gunn, Beck, Redden & Secrest, L.L.P., Houston, for Appellant.
Mark Ryan Trachtenberg, Alene Ross Levy, Haynes & Boone, LLP, Houston, Karen Sue Precella, Haynes & Boone, LLP, Fort Worth, for Appellee.
Panel consists of Justices JENNINGS, ALCALA and HANKS.
Appellant, Houston Pipeline Company LP (Houston Pipeline), appeals from a declaratory judgment entered by the trial court declaring relative rights in natural gas between Houston Pipeline and appellee, Bank of America, N.A. (the Bank). In five issues, Houston Pipeline contends the following: (1) the declaratory judgment violated the automatic bankruptcy stay of the Enron Company's (Enron) and related entities' bankruptcies; (2) the declaratory judgment violated the declaratory judgments act by affecting interests of absent parties and by not resolving the controversy; (3) the declaratory judgment was not entered in support of a ripe and justiciable controversy; (4) unresolved questions of material fact precluded entry of summary judgment on three of the four declarations; and (5) the trial court erred by summarily rejecting Houston Pipeline's counterclaim. We conclude that the trial court's entry of the declaratory judgment violated the automatic bankruptcy stay, thus rendering the judgment void. Accordingly, we vacate the trial court's judgment and dismiss the case.
Houston Pipeline operates the Bammel Gas Reservoir, injecting and removing gas to sell to consumers in southeast Texas. In 1997, Houston Pipeline, at the time a subsidiary of Enron, sold natural gas to the Bammel Gas Trust (Bammel Trust), a trust created by Enron and the Bank, for $232 million. The Bank, through a lender group, provided the loan proceeds for the purchase, for which a security agreement was executed. After the sale, Houston Pipeline had the right to use the natural gas in the Bammel Reservoir in exchange for an obligation to pay fees to the Bammel Trust, and the Bank had a security interest in that gas.
In 2001, Enron sold Houston Pipeline to AEP Energy Services Gas Holding Company (AEP). To facilitate this second sale, the Bammel Trust released Houston Pipeline's liabilities and obligations resulting from the first sale, and leased the natural gas in the Bammel Reservoir to BAM Lease Co. (LeaseCo), another subsidiary of Enron, but Houston Pipeline still had the right to use the natural gas in the Bammel Reservoir.
A series of documents was created relating to these transactions (collectively, the "Transaction Documents"), which refer to the natural gas variously as "storage gas," "pledged gas," "cushion gas" and "working gas."1 Unless otherwise noted, we refer to the natural gas in the Bammel Gas Reservoir as the "Storage Gas," which includes the pledged gas, cushion gas, and working gas. As a result of the sale of Houston Pipeline to AEP, the parties executed "amended and restated" documents. Several of these documents are at issue in this case.2
In December 2001, after executing the amended and restated Transaction Documents, Enron, LeaseCo, and other Enron affiliates filed for bankruptcy. The Bank subsequently filed a declaratory judgment action, the subject of this appeal, in state trial court, contending that Houston Pipeline's right to use the Storage Gas was subject to the Bank's security interest in the Storage Gas. The trial court granted summary judgment for the Bank and entered the following declarations (the Declarations):
(a) [Houston Pipeline] is estopped to deny that the Trustee is the owner of the Storage Gas;
(b) [The Bank] as Administrative Agent holds a security interest that is, as against [Houston Pipeline], a valid and first-priority security interest in the Storage Gas;
(c) As a result of Bankruptcy Events involving Enron Corp. and BAM Lease Company, Events of Default and Guaranty Defaults have occurred under the Participation Agreement, the Guaranty, and the Security Agreement (as amended and restated);
(d) Any rights of [Houston Pipeline] to use the Storage Gas under or based on the Right to Use Agreement, the Consent and Acknowledgment Agreement, the Master Transaction Agreement, or any other Transaction Document (as amended and restated) are subject to the Trustee's ownership rights in and to the Storage Gas and Bank of America as Administrative Agent's security interest in the Storage Gas.
The following Transaction Documents are relevant to this case: Pressurization and Storage Gas Borrowing Agreement, Right to Use Agreement, Cushion Gas Consent, Amended and Restated Security Agreement, and Amended and Restated Performance Guaranty.
The Pressurization and Storage Gas Borrowing Agreement (Pressurization Agreement) granted Houston Pipeline the right to use the Storage Gas in exchange for payments of pressurization fees to Bammel Trust and gave the Bank a security interest in the Storage Gas. The Amended and Restated Pressurization Agreement (Amended Pressurization Agreement) reflected a lease of the Storage Gas by Bammel Trust to LeaseCo and released Houston Pipeline's obligations and liabilities to the Bammel Trust. LeaseCo assumed Houston Pipeline's obligation to pay pressurization fees and also became obligated to provide "Exchange Gas" to Bammel Trust in exchange for the Storage Gas. Houston Pipeline also purchased 25 Bcf3 of the Storage Gas from Bammel Trust and sold 10.5 Bcf of the Storage Gas to LeaseCo. After this transaction, 55 Bcf of the Storage Gas was left in the Bammel Gas Reservoir. The ownership rights to this 55 Bcf of Storage Gas is at issue here.
LeaseCo and Houston Pipeline executed a Right to Use Agreement that provides that "so long as no [Houston Pipeline] Default has occurred and is continuing . . . LeaseCo will have sufficient rights in and to the [Storage Gas] to enable it to make, and that it will cause and allow [the Storage Gas] to be available to [Houston Pipeline] ... for [Houston Pipeline's] right to Quiet Enjoyment at all times during the Term." The term was for 30 years with an option to renew for another 20 years. The Bank consented to the Right to Use Agreement and incorporated the terms of that agreement into the Cushion Gas Consent.
The Cushion Gas Consent contains an express consent by the Bank, Houston Pipeline, the Bammel Trust trustee, and LeaseCo to the terms and conditions of the Right to Use Agreement. The Cushion Gas Consent further provides that Houston Pipeline has the right to cure any "Event of Default" in the performance or payment of obligations set forth in the Transaction Documents. Upon an Event of Default that "could adversely affect Houston Pipeline's rights under or pursuant to the Right to Use Agreement," the Bank was required to send a written notice of the Event of Default to the Bammel Trust trustee, LeaseCo, and Enron, among others, to trigger Houston Pipeline's right to cure. Any "Guaranty Default" defined in the Performance Guaranty is labeled in the Cushion Gas Consent as an Event of Default.
In the Amended and Restated Security Agreement (Security Agreement), the Bank agreed that its security interest in the pledged gas, the Storage Gas covered by the Bank's security interest, would be "subordinate to [Houston Pipeline's] right to borrow and use such Natural Gas in accordance with the terms of the Pressurization Agreement" "until the [Bammel Trust] Trustee . . . exercises its rights under . . . the [Performance] Guaranty."
In the Amended and Restated Performance Guaranty (Guaranty), Enron guaranteed to the Bammel Trust trustee "the punctual performance or payment . . . when due, . . . of all obligations of LeaseCo [and others] now or hereafter existing under the [Transaction Documents] . . . and any and all expenses . . . incurred by the [Bammel Trust trustee] in enforcing any rights under" the Guaranty. A Guaranty Default by Enron, defined in the Cushion Gas Consent as an Event of Default, includes, among other things, "Enron or any of its Principal Subsidiaries [becoming] the subject of a Bankruptcy Event." Upon an Event of Default, the Bammel Trust trustee "shall be entitled to exercise all rights and remedies available at law, in equity, by statute, by agreement or otherwise," but as set forth above, under the Security Agreement, the Bank's security interest is subordinate to Houston Pipeline's right to use the Storage Gas until the trustee exercises any of its rights and remedies.
In its first issue, Houston Pipeline contends that the trial court's entry of summary judgment and the Declarations violated the automatic bankruptcy stay, thus rendering the judgment void. The Bank contends that the stay was not violated because only Enron had standing to assert the stay, the judgment did not affect the Enron bankruptcy estate, and the stay was subsequently lifted, rendering any violation of the stay complaint moot.
The filing of a bankruptcy petition operates as an automatic stay of the following acts, among others: "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate," or "any act to create, perfect, or enforce any lien against property of the estate." 11 U.S.C.S. § 362(a)(3), (4) (LexisNexis 1995). The Bankruptcy Code defines property of the estate broadly to include "all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case." 11 U.S.C.S. § 541(a)(1) (LexisNexis 1995); see United States v. Whiting Pools, Inc., 462 U.S. 198, 204-05, 103 S.Ct. 2309, 2312, 76 L.Ed.2d 515 (1983).
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