In re Energy Future Holdings Corp.
| Decision Date | 19 December 2016 |
| Docket Number | 14–10990,14–11039,14–11012,Related Case Nos.: 14–10992,Case No. 14–10979 (CSS) (Jointly Administered) |
| Citation | 561 B.R. 630 |
| Parties | In re: Energy Future Holdings Corp., et al., Debtors. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Joseph Charles Barsalona II, Mark D. Collins, Daniel J. DeFranceschi, Andrew Dean, Richards, Layton Finger, P.A., Cormac T. Connor, Kirkland & Ellis LLP, Thomas F. Driscoll, III, The Bifferato Firm PA, Wilmington, DE, William A. Romanowicz, Iskender H. Catto, McDermott Will & Emery LLP, Michael A. Rosenthal, Gibson Dunn & Crutcher LLP, Edward O. Sassower, Brian Schartz, James H.M. Sprayregen, Aparna Yenamandra, Sara B. Zablotney, Stephen E. Hessler, Richard M. Cieri, Kirkland & Ellis LLP, Rebecca Blake Chaikin, New York, NY, Kevin Chang, Michael P. Esser, Christopher W. Keegan, Mark E. McKane, Esq., Justin Sowa, Anna Terteryan, Kirkland & Ellis LLP, San Francisco, CA, Barack S. Echols, Lisa G. Esayian, Emily E. Geier, William Guerrieri, Richard U.S. Howell, Chad J. Husnick, Natalie Hoyer Keller, Marc Kieselstein, Todd F. Maynes, Andrew McGaan, William T. Pruitt, Brenton Rogers, Steven N. Serajeddini, Anthony V. Sexton, Michael B. Slade, Kirkland & Ellis LLP, Mark K. Thomas, Peter Jonathon Young, Jeff J. Marwil, Proskauer Rose LLP, Chicago, IL, Michael A. Firestein, Proskauer Rose LLP, Los Angeles, CA, Jonathan F. Ganter, Bridget K. O'Connor, Matthew E. Papez, Michael A. Petrino, Bryan M. Stephany, Kirkland & Ellis LLP, Washington, DC, P. Stephen Gidiere, III, Jeremy L. Retherford, W. Clark Watson, Balch & Bingham LLP, Birmingham, AL, Jeremy L. Graves, Gibson Dunn & Crutcher LLP, Denver, CO, David M. Klauder, Bielli & Klauder, LLC, Jason M. Madron, Tyler D. Semmelman, Zachary I. Shapiro, Richards, Layton & Finger, P.A., Wilmington, DE, Michael L. Raiff, Gibson Dunn & Crutcher LLP, Dallas, TX, Lary Alan Rappaport, Proskauer Rose LLP, Los Angeles, CA, for Debtors.
Before the Court is the Motion of Shirley Fenicle, David William Fahy, John H. Jones, and David Heinzmann to Dismiss Chapter 11 Petitions of LSGT Debtors EECI, Inc., EEC Holdings, Inc., LSGT Sacroc, Inc. and LSGT Gas Co. LLC (D.I. 10074 and 10075) (the "Motion" filed, collectively, by the "Asbestos Movants"), and the response and replies thereto (D.I. 10249, 10273, and 10304). The Motion seeks dismissal of four of the above-captioned debtors' cases (as defined in more detail below, the "LSGT Debtors").
Thirty–one months after the filing of these Chapter 11 cases in April 2014 and on the eve of the third confirmation hearing in these cases, several persons asserting asbestos-related claims against the LSGT Debtors have brought a motion to dismiss the LSGT Debtors' cases as having been filed in bad faith . The motion to dismiss, however, is based upon events that transpired after the petition date . The crux of the movants' complaint is that the plan of reorganization currently before the Court provides (as did the plan confirmed in December 2015 that was subsequently rendered void for unrelated reasons) for the discharge of unmanifested asbestos claims where the claimant did not timely file a proof of claim under a bar date order approved in 2015—a scenario that was not contemplated until July 2014 at the earliest.
The evidence clearly establishes that based on the totality of the circumstances the LSGT Debtors' bankruptcy petitions were filed in good faith because the filing was for a valid bankruptcy purpose and not as a litigation tactic. The LSGT Debtors' bankruptcy was filed for three primary purposes. First, they were filed to avoid immediate cash flow insolvency. The LSGT Debtors' primary assets were intercompany claims against EFH Corp., a company that was clearly going to file bankruptcy. The LSGT Debtors' primary liabilities were the costs of defending and settling asbestos related litigation. The imposition of the automatic stay in EFH Corp.'s bankruptcy was going to cut off the LSGT Debtors' sole source of liquidity. At the same time, absent their own automatic stay, the LSGT Debtors would have continued to incur expenses related to asbestos litigation. In short, absent their own bankruptcy filing, the LSGT Debtors would have been immediately cash flow insolvent upon EFH Corp.'s bankruptcy filing.
Second, the Debtors as a whole were facing the prospect of a huge $6.5 billion deconsolidation tax for which three of the LSGT Debtors would have been jointly and severally liable. As part of the Debtors' reorganization strategy for the enterprise as a whole, it was hoped that the tax could be avoided. However, to avoid the tax would require obtaining a private letter ruling from the IRS and extensive negotiations among the Debtors and their numerous creditor constituencies. The LSGT Debtors believed that their best hope for avoiding a tax bill that would have greatly impaired their asbestos creditors was to file bankruptcy in order to participate directly in the solution to the $6.5 billion tax problem.
Third, the LSGT Debtors filed bankruptcy in the hope of negotiating a resolution in bankruptcy that would maximize both the value of their assets and the recovery on their asbestos related claims. Although irrelevant to the question of whether the LSGT Debtors filed their cases in good faith, subsequent events have proven the strategy successful. In December 2015, the Debtors reached a settlement with one of its official committees of unsecured creditors that requires any plan of the Debtors to provide for the reinstatement of the LSGT Debtors' intercompany claims amongst each other and against EFH Corp. as well as the asbestos related claims for which a timely proof of claim was filed. The plan currently before the Court and scheduled for confirmation in February 2017 provides just that, even though EFH Corp.'s other unsecured creditors are impaired to the tune of ten cents on the dollar and all other intercompany claims are being discharged.
There can be no question that the LSGT Debtors' decision to file bankruptcy was in good faith and subsequent events have proven the decision to have been correct. Furthermore, the Motion is barred as untimely by the doctrine of laches. Thus, the Court will deny the Motion.
This Court has subject matter jurisdiction over the LSGT Debtors pursuant to 28 U.S.C. §§ 157 and 1334. Venue in the United States Bankruptcy Court for the District of Delaware was proper as of the Petition Date (as defined below) pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b).
Energy Future Holdings Corp. ("EFH Corp.") and 69 of its direct and indirect subsidiaries (collectively, the "Debtors"), including LSGT Gas Co. LLC ("LSGT Gas"), EEC Holdings, Inc. ("EEC Holdings"), EECI, Inc. ("EECI"), and LSGT Sacroc, Inc. ("Sacroc," and together with LSGT Gas, EEC Holdings, and EECI, the "LSGT Debtors"), filed petitions under Chapter 11 of the United States Bankruptcy Code on April 29, 2014 (the "Petition Date"). The Debtors' bankruptcies were consolidated for procedural purposes only and have been jointly administered pursuant to Federal Rule of Bankruptcy Procedure 1015 and Local Bankruptcy Rule 1015–1.
Thirty–one months after the Petition Date, the Asbestos Movants filed the Motion under section 1112(b) of the United States Bankruptcy Code (the "Bankruptcy Code"). The Court held an evidentiary hearing on the Motion on December 5, 2016.2 Thereafter, the Court requested post-trial briefing from the parties.3 This is the Court's Opinion on the Motion, pursuant to section 1112(b)(3) of the Bankruptcy Code.
In October 2007, the Debtors adopted its current organizational structure in a privatization transaction of TXU Corp., EFH Corp.'s predecessor. The LSGT Debtors are successors to certain entities acquired through the 1996 merger of TXU Corp. and ENSERCH Corporation ("Enserch").
Enserch was an integrated natural gas company with operations in natural gas distribution and transmission, oil and gas exploration and production, oil-field services, and engineering and construction. LSGT Gas was previously the primary Enserch natural gas distribution and transmission business unit, and EEC Holdings and EECI related to Enserch's engineering and construction businesses.
As of the Petition Date, and as detailed in the below chart, the Debtors' books and records reflect a $560 million payable owed to LSGT Gas by EFH Corp., and approximately $990 million in payables owed to Sacroc, EECI, and EEC Holdings by LSGT Gas. The LSGT Debtors' primary assets and liabilities have been in the form of these intercompany receivables, certain residual pension obligations, and asbestos liabilities.
Debtor Personal Property Assets12 Accounts Receivable
LSGT Gash13 Interest in insurance policies; The accounts receivable were
accounts receivable in the from (i) Debtor EFH Corporate
approximate amount of $560 Services Co., (ii) Debtor Energy
million; ownership interests in Future Holdings Corp., and
incorporated businesses; and other (iii) a non-debtor foreign
personal property in the subsidiary of EFH Humphreys
approximate amount of & Glasgow Ltd
approximately $1.01 million
LSGT Sacroc14 Interest in insurance policies and The accounts receivable are
accounts receivable in the from LSGT Gas
approximate amount of $502
million
EEC Holdings15 Interest in insurance policies; The accounts receivable are
ownership interests in incorporated businesses.; interest
and accounts receivable in...To continue reading
Request your trial
-
MF Global Holdings Ltd. v. Allied World Assurance Co. (In re MF Global Holdings Ltd.)
... ... 619 (a). EOI Corp. v. Med. Mktg. Ltd. , 172 F.R.D. 133, 136 (D.N.J. 1997) (stating that "the United Kingdom objected ... ...
-
MF Global Holdings Ltd. v. Allied World Assurance Co. (In re MF Global Holdings Ltd.)
... ... See Signal Capital Corp. v. Eastern Marine Management, Inc. , 899 F.Supp. 1167, 1171 (S.D.N.Y. 1995) (Sotomayor, J.) (in ... ...
-
MF Global Holdings Ltd. v. Allied World Assurance Co. (In re MF Global Holdings Ltd.)
... ... 2002) [hereinafter Hagerstown ] (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ). However, "[l]ike any statutory ... ...
-
MF Global Holdings Ltd. v. Allied World Assurance Co. (In re MF Global Holdings Ltd.)
... ... In re MarketXT Holdings Corp. , Case No. 0412078, 2006 WL 408317, at *1 (Bankr. S.D.N.Y. Jan. 27, 2006) ("It is well accepted, ... 1996) (stating that sanctions for civil contempt serve two purposes: to coerce future compliance and to remedy any harm past noncompliance caused the other party). C. Standards for ... ...