In re Corp..

• Decision Date: 19 April 2011
• Docket Number: No. 09–11233 (REG).,09–11233 (REG).
• Citation: In re Corp.., 448 B.R. 635 (Bankr. S.D.N.Y. 2011)
• Parties: In re CHEMTURA CORPORATION, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

448 B.R. 635

In re CHEMTURA CORPORATION, et al., Debtors.

No. 09–11233 (REG).

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

April 19, 2011.

Duane Morris LLP, By: Gerard S. Catalanello, Esq. (argued), New York, NY, and By: Lawrence J. Kotler, Esq., Philadelphia, PA, Conflicts Counsel for the Debtors.Musick, Peeler & Garrett LLP, By: Richard S. Conn, Esq. (argued), Brian L. Holman, Esq., Los Angeles, CA, for Creditor Oildale Energy LLC.

BENCH DECISION ¹ ON ESTIMATION OF CLAIMS OF CREDITOR OILDALE ENERGY LLC

ROBERT E. GERBER, Bankruptcy Judge.

Introduction

In this contested matter in the chapter 11 cases of specialty chemicals company Chemtura Corporation (“Chemtura”) and its affiliates (collectively, the “Debtors”), the Debtors move for an order estimating the claim—filed in the original amount of approximately $16.3 million ²—of Oildale Energy LLC (“Oildale”), to which the Debtors have objected, for purposes of setting a distribution reserve.

For the reasons discussed below, I conclude that Oildale's claims will ultimately be found to be released as a consequence of provisions in its 2002 settlement with its primary obligor, and to be barred by the statute of limitations by reason of Chemtura's predecessor Crompton's very clear repudiation of any obligations to Oildale in a letter Crompton sent Oildale 7–1/2 years before the filing of Chemtura's chapter 11 case. Thus I conclude that Oildale's claims ultimately will be disallowed. While that would suggest estimating Oildale's claim at $0, I recognize that the application of the law here is somewhat debatable, and recognize the possibility—though much less than a likelihood—that an appellate court might disagree with me. Accordingly, for the purpose of setting reserves in this case, I am estimating the claim at 30% of the amount of damages that I'd find if the Oildale claim were timely. The parties are to agree upon the appropriate reserve, based on the principles set forth in this decision, or, failing agreement, to arrange for further submissions in support of their alternative positions.

My Findings of Fact, Conclusions of Law, and bases for the exercise of my discretion in connection with this determination follow.

Findings of Fact

As discussed below,³ courts needn't make traditional findings of fact in connection with estimation hearings; they need only decide the probability of each side's success before a traditional trier of fact. But here I have the benefit of the submissions that were made on summary judgment motions—including the documentary exhibits and statements of undisputed facts, and responses, that are required under Local Bankruptcy Rule 7056–1(b). With the benefit of those submissions, it's clear that the great majority of the underlying facts are undisputed. And because I don't find any of the disputed facts to be relevant to my decision here, I here rely upon only undisputed facts.

Those facts reveal a chain of successive agreements, amendments to agreements, and assignments, and no less than three separate bankruptcies, and agreements and rulings in the two earlier bankruptcy cases.

1. The Original Cogeneration Agreement (July 1991)

Before 1991, Witco Corporation (“Witco”), a Chemtura predecessor, owned and operated an oil refinery in the City of Oildale, California (the “Refinery”). ⁴ The Witco Refinery was adjacent to a gas-fired electricity “cogeneration” facility ⁵ owned and operated by Oildale Cogeneration Partners, L.P. (“Oildale Cogeneration”). In July 1991, Witco and Oildale Cogeneration entered into a cogeneration agreement (“Cogeneration Agreement”) and an industrial ground lease (“Ground Lease”), pursuant to which Oildale Cogeneration, as lessee, leased the land on which the cogeneration facility was located from Witco, the lessor.

The Cogeneration Agreement thereby created a symbiotic relationship between Witco and Oildale Cogeneration. Witco needed steam and process heat from Oildale Cogeneration to operate the Refinery, and Oildale Cogeneration needed both raw materials and access to wastewater treatment and disposal services to operate its neighboring cogeneration facility. Under the Cogeneration Agreement, Witco would purchase certain minimum amounts of steam and process heat on an annual basis from Oildale Cogeneration for use at Witco's Refinery—and irrespective of actual usage, Witco was obligated to pay Oildale Cogeneration for these minimum amounts of steam and process heat. ⁶ In addition, the Cogeneration Agreement provided that Witco would provide (a) certain raw materials to Oildale Cogeneration at a fixed cost, and (b) treatment and disposal facilities and services with respect to water treatment waste and wastewater generated by Oildale Cogeneration, at Witco's own expense.⁷ By reason of the latter obligations, Witco's obligations under the Cogeneration Agreement were for more than the payment of money.

2. Assignment By Oildale Cogeneration to Oildale Execution of First Amendment (both April 1996)

About five years later, a new player stepped into Oildale Cogeneration's shoes. In April 1996, Oildale Cogeneration assigned its rights and obligations under the Cogeneration Agreement and Ground Lease to claimant Oildale—and Witco and Oildale executed an amendment to the Cogeneration Agreement (the “First Amendment”), which substituted Oildale as a party to the Cogeneration Agreement in the place of Oildale Cogeneration, and also made certain other modifications to the agreement.

The First Amendment also amended Section 16.2 of the Cogeneration Agreement, addressing Witco's rights to assign, mortgage, pledge, or transfer its rights under the Cogeneration Agreement. As amended, it then provided:

16.2 Assignment and Mortgaging by Witco

(a) Nothing in this Agreement shall prevent Witco from assigning, mortgaging, pledging, encumbering or transferring or hypothecating this Agreement provided that any and such assignment shall be made subject to this Agreement, and shall not operate to diminish the obligations of Witco hereunder.

(b) Anything herein to the contrary notwithstanding, Witco shall have the right to assign its interest in all (but not part) of this Agreement to any purchaser of all or substantially all of Witco's interest in the Refinery (“Assignee”), but Witco shall not be released from its obligations hereunder as a result thereof. However, Witco shall be fully and completely discharged from its obligations hereunder, provided that such Assignee shall agree to and shall assume and be bound by the terms of this Agreement, and is reasonably deemed in writing by Cogen and TCW (or other future secured lenders of Cogen), to be capable of performing under the terms of this Agreement. ⁸

3. Assignment by Witco to Golden Bear (July 1997)

A little over a year later, in July 1997, Witco sold certain of its assets, including the Refinery in Oildale, to Golden Bear Oil Specialties, Inc. (f/k/a Golden Bear Acquisition Corporation) (“Golden Bear”). Along with the sale, Witco assigned all of its rights and obligations under the Cogeneration Agreement and the Ground Lease to Golden Bear as well.

For approximately three years following the assignment of the Cogeneration Agreement to Golden Bear, Golden Bear performed all of its obligations, as Witco's assignee, under the Cogeneration Agreement. And during those same three years, Oildale accepted Golden Bear' performance of the obligations due and owing under the Cogeneration Agreement.

4. The Second Amendment (April 2000)

In April 2000, Oildale and Golden Bear—each of the parties, by that time, to the Cogeneration Agreement after the earlier assignments by Oildale Cogeneration and Witco, respectively—executed a Second Amendment to Cogeneration Agreement (the “Second Amendment”).

The Second Amendment provided that “[Golden Bear] has succeeded to Witco's right, title and interest in, under and to the Cogeneration Agreement” ⁹—and replaced Witco with Golden Bear as a party throughout the Cogeneration Agreement. But the Second Amendment further stated that “nothing herein shall be construed as operating to release any obligation of Witco to Oildale Energy arising under the Cogeneration Agreement or otherwise.” ¹⁰

In addition, the Second Amendment modified the provisions of the Cogeneration Agreement that established the mechanism for calculating the “fuel price reimbursement” under that contract, in ways that I consider unnecessary to discuss here.

Witco was not a party to the Second Amendment, nor was Witco's consent or authorization sought or obtained prior to the execution of the Second Amendment. Following the execution of the Second Amendment, Golden Bear continued to perform under the Cogeneration Agreement, as modified by the First and Second Amendments.

5. Bankruptcy # 1 (of Golden Bear, in C.D. Cal., Apr. 2001)

In April 2001, Golden Bear, which had acquired the Refinery in the City of Oildale and was Witco's earlier assignee, commenced the first of the three bankruptcies involving parties in the chain of contractual obligations at issue here—a chapter 11 case in the Central District of California, in Los Angeles.

In June 2001, about three months after the Golden Bear chapter 11 filing, Bankruptcy Judge Sheri Bluebond, of the Central District of California Bankruptcy Court, entered an order authorizing the sale of substantially all of Golden Bear's assets, including the Refinery, in a 363 sale to Tricor Refining, Inc. (“Tricor”), the successful bidder. At the same time, Judge Bluebond also authorized the rejection of several of Golden Bear's executory contracts, including the Cogeneration Agreement and Ground Lease.¹¹

The schedule of contracts to be rejected in accordance with the order authorizing Golden Bears's 363 sale (the “363 Sale Order”) presented Oildale's cure amount relating to the Cogeneration Agreement at the time of rejection as approximately $1.78 million. In September 2001, Oildale filed claims in the Golden Bear chapter 11 case seeking...