In re Cubic Energy, Inc.

• Decision Date: 06 July 2018
• Docket Number: Case No.: 15–12500 (CSS) (Jointly Administered)
• Parties: IN RE CUBIC ENERGY, INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

587 B.R. 849

IN RE CUBIC ENERGY, INC., et al., Debtors.

Case No.: 15–12500 (CSS) (Jointly Administered)

United States Bankruptcy Court, D. Delaware.

Signed July 6, 2018

BAYARD, P.A., Neil B. Glassman, Scott D. Cousins, Justin R. Alberto, 222 Delaware Avenue, Suite 900, Wilmington, DE 19801, and HOLLAND & KNIGHT LLP, Robert W. Jones, Brent R. McIlwain, Brian Smith, 200 Crescent Court, Suite 1600, Dallas TX 75201, Counsel for Debtors and Debtors-in-Possession

RICHARDS, LAYTON & FINGER, P.A., Marcos A. Ramos, Brendan J. Schlauch, One Rodney Square, 920 North King Street, Wilmington, DE 19801, and WIENER, WEISS & MADISON, a PC, John S. Hodge, R. Joseph Naus, 333 Texas Street, Suite 2350, Shreveport, Louisiana 71101, Counsel to the Liquidating Trust

OPINION

Sontchi, J.

INTRODUCTION ¹

Before the Court is a Motion seeking interpretation and enforcement of provisions of the Cubic Plan concerning the possible release, discharge, and injunction of claims and causes of action, particularly any claims against the Movants relating to the Louisiana Judgment.

Upon review of the relief requested and the facts herein, the Court finds that any decision it could currently make on the merits of the dispute would constitute an impermissible advisory opinion. As a result, the Court will deny the Motion in its entirety.

JURISDICTION & VENUE

The Court's jurisdiction over the Motion is contested for requiring an impermissible advisory opinion. "The Court has inherent power and a continuing obligation to determine its own jurisdiction."² As such, the Court may consider whether the Motion constitutes an advisory opinion.

To the extent jurisdiction is proper, venue is also proper before the United States Bankruptcy Court for the District of Delaware under 28 U.S.C. §§ 1408 and 1409. The Court has the judicial authority to enter a final order.

BACKGROUND

A. Procedural History

On December 11, 2015, Cubic Energy, Inc. ("Cubic") and associated entities (collectively, the "Debtors", and post-confirmation, the "Reorganized Debtors") filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in this Court.³

Gloria's Ranch, LLC ("Gloria's Ranch") filed a pre-confirmation motion for relief from the automatic stay to confirm its ability to enforce a judgment (the "Louisiana Judgment") entered against Tauren Exploration, Inc. ("TEI") and others in Gloria's Ranch, LLC v. Tauren Exploration, Inc., Cubic Energy, Inc., and Exco USA Asset, LLC (the "Louisiana Litigation").⁴ The motion was later resolved through language added into the Debtors' plan of reorganization (the "Cubic Plan") and the associated confirmation order (the "Cubic Confirmation Order"), which went effective on February 17, 2016.⁵

On May 16, 2017, Calvin A. Wallen ("Wallen") and Fossil Operating, Inc. ("Fossil," together with Wallen, "Movants") filed a Motion for Order in Aid of Confirmation and Consummation of Chapter 11 Plan Interpreting and Enforcing the Release, Discharge, and Injunction of Certain Claims and Causes of Action (the "Motion").⁶ Tauren Exploration Inc. Liquidating Trust (the "Liquidating Trust") filed its preliminary objection to the Motion on June 6, 2017, and Movants filed their reply on July 5, 2017.⁷ Oral argument was held on the Motion on July 10, 2017.⁸

B. Factual Background

a. Dispute Relating to the Louisiana Judgment

On September 17, 2004, Gloria's Ranch granted a mineral lease to TEI in certain areas in Caddo Parish, Louisiana.⁹ The lease granted TEI the exclusive right to explore for, and produce minerals from, any and all depths, horizons, and formations under the land, including the Cotton Valley shale formation.¹⁰

TEI later assigned an undivided 49% interest in the lease to Cubic.¹¹ Then, in March 2007, TEI and Cubic both executed credit agreements with Wells Fargo Energy Capital, Inc. ("WFEC").¹² As security for its loans, Cubic mortgaged its interests in mineral leases with various landowners, including Gloria's Ranch, and collaterally assigned the profits therefrom.¹³

That same year, Cubic contracted with Fossil to conduct oil and gas operations on the property leased from Gloria's Ranch.¹⁴ Fossil drilled and completed wells on certain sections of the property.¹⁵

In 2009, TEI and Exco USA Asset, Inc. ("Exco") negotiated a purchase and sale agreement whereby Exco purchased TEI's 51% interest in the lease as to all depths below the base of the Cotton Valley formation, with TEI retaining its interest for the area above the base of the formation.¹⁶ As a result of the Exco sale, WFEC released the mortgage it had on TEI's interest after receiving repayment pursuant to the credit agreement.¹⁷ As a condition of WFEC releasing the mortgage, TEI assigned a 10% net profits interest in its rights to WFEC. On November 9, 2009, Cubic assigned to TEI an overriding royalty interest in its rights in the lease as to all depths below the base of the Cotton Valley formation, which TEI then partially assigned to WFEC.¹⁸

On December 3, 2009, Gloria's Ranch sent a letter to TEI, Cubic, Exco, and WFEC requesting they provide more information on the monthly revenue and operating expenses of the wells on, or unitized with, the lease.¹⁹ The letter further articulated the belief that the lease with Gloria's Ranch had expired, in whole or in part, for lack of production of paying quantities.²⁰ After receiving an unsatisfactory response from TEI, Gloria's Ranch sent another letter to TEI, Cubic, Exco, and WFEC demanding a recordable act evidencing the expiration of the lease. None of the parties released the lease.²¹

Gloria's Ranch subsequently filed suit against TEI, Cubic, Exco, and WFEC for their failure to furnish a recordable act evidencing the expiration of the lease.²² Gloria's Ranch entered a settlement agreement with Exco whereby it released Exco from the lawsuit, but the other defendants were taken to trial.²³ Following a four-day bench trial, the trial court rendered judgment declaring the lease expired and canceled. The trial court awarded damages to Gloria's Ranch for lost-leasing opportunities, royalties, and punitive damages. TEI, Cubic, and WFEC were found jointly and severally liable for Gloria's Ranch's damages and attorneys' fees.²⁴

On November 23, 2015, a final judgment was entered in favor of Gloria's Ranch in the Louisiana Litigation.²⁵ The Louisiana Judgment was subsequently affirmed by the Second Circuit Court of Appeals in Louisiana on June 2, 2017.²⁶

b. Cubic and TEI Plans

Following the Louisiana Judgment, Cubic and affiliated Debtors filed for bankruptcy protection in this Court. Gloria's Ranch filed a pre-confirmation motion seeking to lift the automatic stay so that it might enforce the Louisiana Judgment against TEI and other non-debtor entities.²⁷ The issues in that motion were resolved in language placed in the Cubic Confirmation Order, specifically paragraph 131. Paragraph 131(e) stipulates, among other things, that the automatic stay imposed by section 362(a) does not apply to TEI, WFEC, Exco, or any other non-debtor entity and allows for appeals relating to the Louisiana Litigation to continue.²⁸ The Cubic Plan itself further contains a plan injunction provision in section 11.4 and releases in section 11.5, both provisions which the Movants invoke before the Court.²⁹

On June 3, 2016, TEI filed its own voluntary chapter 11 petition in the Northern District of Texas, Dallas Division (the "Texas Bankruptcy Court").³⁰ On March 24, 2016, the Honorable Harlin D. Hale confirmed a plan of reorganization for TEI, as proposed by Gloria's Ranch (the "TEI Plan").³¹ The confirmation order was entered over objections filed by both TEI and Wallen.³² As part of the TEI Plan, John Hodge, the lawyer representing Gloria's Ranch, was named trustee of the TEI estate (the "Tauren Trustee") for the benefit of the Liquidating Trust.³³

Under the TEI Plan, the Tauren Trustee has the responsibility to collect and to reduce to money all property of the TEI estate, including its causes of action and other claims, and to disburse the proceeds to the holders of allowed claims.³⁴ Gloria's Ranch is the holder of allowed claims against TEI, including a secured claim based on liens recorded as a result of the Louisiana Judgment.³⁵ The TEI Plan also specifically identifies various claims and causes of action that may be pursued by the Tauren Trustee, including (but not limited to) claims arising from, or relating to, the transfer of nearly $14 million away from TEI to Wallen and companies he controls.³⁶

c. Litigation History since the TEI Plan

Approximately two weeks after confirmation of the TEI Plan, TEI filed a Motion to Amend the Confirmation Order (the "Motion to Amend") seeking to modify the order confirming the TEI Plan so that TEI, rather than the Liquidating Trust, could seek enforcement of the Cubic Confirmation Order.³⁷ On April 20, 2017, the Texas Bankruptcy Court entered an order denying TEI's Motion to Amend, and the TEI Plan went effective eight days later.³⁸

On May 16, 2016, Gloria's Ranch commenced a second, separate action in the First Judicial District Court of Caddo Parish, Louisiana. Gloria's Ranch asserted claims related to the joint or several liability of TEI, Fossil, Wallen, or others under the Louisiana Judgment, including claims for fraudulent conveyance, alter ego, and veil piercing. The action notes that Wallen has acts as the owner and controller of TEI.³⁹ This second action was later removed from state court to the Texas Bankruptcy Court as an adversary proceeding, given that TEI was included as a party to the action.⁴⁰

Exactly one year later, the Movants filed the Motion in this Court seeking an interpretation and enforcement of the Cubic Plan, specifically sections 11.4 and 11.5.⁴¹ Movants specifically request the Court, among other things, hold as follows:

a. Wallen and Fossil are Released Parties, as that term is defined in the Cubic Plan;

b. Tauren, the Debtors, and the Reorganized Debtors are Releasing Parties as that

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