In re Monroe Well Service, Inc.
| Decision Date | 10 December 1987 |
| Docket Number | Bankruptcy No. 86-02012F. |
| Citation | 80 BR 324 |
| Parties | In re MONROE WELL SERVICE, INC. (Jointly administered with Metro Pipe and Supply Co., Inc., No. 86-02013F; Evergreen Oil & Gas, Inc., No. 86-02014F; Tullos Group, Inc., No. 86-02015F and SSM (A Pennsylvania Partnership), No. 86-02016F), Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Robert J. Hoelscher, Drinker, Biddle & Reath, Philadelphia, Pa., for objector, Voest-Alpine Trading USA Corp.
Leon S. Forman, Blank, Rome, Comisky & McCauley, Philadelphia, Pa., for Continental Bank.
Robert H. Levin, Gary D. Bressler, Adelman Lavine Gold & Levin, Philadelphia, Pa., for debtors, Monroe Well Service, Inc., et al.
Michael A. Bloom, Bryna L. Singer, Cohen, Shapiro, Polisher, Shiekman & Cohen, Philadelphia, Pa., for the Official Committee of Ltd. Partnerships.
C. Warren Trainor, Ehmann & VanDenbergh, Philadelphia, Pa., for Official Committee of Unsecured Creditors.
J. Scott Victor, Lashner, Victor & Maschmeyer, Philadelphia, Pa., for objectors, James Drilling Co., Inc., James R. McCoy Associates Engineers, et al.
John S. Estey, Natalie D. Ramsey, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., to Sheldon S. Somerman.
Various creditors have objected to the disclosure statement submitted by the debtor and other plan proponents1 in this complex chapter 11 bankruptcy case. In accordance with 11 U.S.C. § 1125(b) and Bankr.R. 3017, a hearing was held to consider various objections including the adequacy of information provided by the disclosure statement. After considering the arguments offered by the many counsel who participated at the hearing, I will sustain the objections raised in small part. Many of the objections are considered more appropriately at a confirmation hearing, and so will be deferred. I will grant the plan proponents leave to amend their disclosure statement to meet certain concerns raised by the objections. In addition, the plan proponents may wish to alter further both the plan and the disclosure statement. While I will not mandate such further amendments, the plan proponents may well conclude that confirmation may be better achieved, certainly at less expense, if such additional amendments were made.
The heart of the current dispute is an amended disclosure statement 86 pages long, with approximately 50 additional pages of attachments detailing information about the debtors and about the third amended joint plan of reorganization. This plan is 76 pages long. The length and complexity of these documents stem more from their objectives and ambition than from the structure of debtor-creditor relationships. In order to understand the objections posed by certain creditors, it is necessary, at the obvious risk of oversimplification, to summarize the disputes underlying this chapter 11 case as well as certain provisions of the proposed plan and disclosure statement.
There are five interrelated debtors in the case at bench: Monroe Well Service, Inc.; Metro Pipe and Supply Co., Inc.; Evergreen Oil and Gas, Inc.; Tullos Group, Inc.; and SSM (A Pennsylvania Partnership). All of these debtors are controlled by one principal, Sheldon S. Somerman. In April 1986, these five entities filed voluntary petitions in bankruptcy and were ordered jointly administered. Bankr.R. 1015(b). The impetus for their bankruptcy filings was the steep decline in world oil prices during the 1980's. The overall business purpose of these related entities was to find investors willing to enter into limited partnerships in oil drilling ventures. Once the limited partnerships were formed, Monroe Well Service would undertake oil exploration, drill stripper oil wells in four different states, and maintain and operate the wells. The other debtors would provide equipment, own some wells, and act as a general partner in the limited partnerships; however, the majority of the mineral rights and working interests in the oil wells were owned by nondebtor entities such as the limited partnerships. The debtor's income was derived largely from its drilling operations and its monthly charges for well maintenance. When oil prices declined, so did drilling operations. Left with well maintenance fees as their major source of income, the debtors sought bankruptcy protection from various groups of creditors including several lending institutions.
The debtors' financial problems had significant consequences for those financially connected to the debtor entities. For example, various lending institutions, such as Continental Bank, were involved in financing the debtors' operations. Not only were loans not repaid, but Continental Bank found itself the target of a multimillion dollar lawsuit brought by a class of individuals who were limited partners in the Monroe oil ventures. Davies et al. v. Continental Bank, C.A. No. 86-6508 (E.D.Pa.). This same class of limited partners also brought suit against broker-dealers who had been involved in selling the limited partnerships. Waxman et. al. v. Shearson, Lehman Bros. Inc., C.A. No. 86-7516 (E.D.Pa.).
Mr. Somerman himself did not escape unnoticed by disgruntled creditors. For example, an involuntary bankruptcy petition was filed against him;2 moreover, he allegedly served as guarantor of various corporate obligations and some creditors are anxious to collect on those guarantees.
Total claims in the jointly administered Monroe bankruptcies easily exceed $50 million and may well be more than twice that amount. Apparently $12.5 million of these claims are held by "M & M lien creditors". These creditors are entities who were mechanics or materialmen involved with the drilling and construction of some of the thousands of wells (and well sites) drilled by Monroe for various limited partnerships. State law provisions permit these M & M lien creditors to assert lien claims against both the oil plus the proceeds from the sale of such oil, from those wells which they helped to drill or construct. As I noted earlier, of the 3400 wells drilled by Monroe, relatively few are actually owned by the debtors. In most instances, the mineral rights or working interests are owned by the limited partnerships (or financial institutions). Therefore, these M & M lien creditors are unsecured creditors of the debtors but secured creditors of nondebtor parties such as various limited partnerships.3 These limited partnerships have themselves asserted millions of dollars of unsecured claims against the debtors.
In their disclosure statement, the debtors assert that all or virtually all of their assets are encumbered by liens and their total unencumbered assets do not exceed $100,000.00. Given that administrative expenses alone exceed $100,000.00 by many multiples, one would envision either a simple liquidating chapter 11 plan, but see 11 U.S.C. § 1129(a)(9); Epling, Proposal For Equality of Treatment for Claims in Chapter 7 and Claims in a Liquidating Chapter 11 Case, 4 Bankr.Dev.J. 399 (1987), or conversion to chapter 7. Either approach would result in little or no dividend for unsecured creditors. However, Continental Bank, the official committee of limited partnerships and Somerman have joined forces in an attempt to resolve most, if not all, of their respective disputes surrounding the affairs of these debtors, within the context of these chapter 11 bankruptcies. They have proposed a plan which, upon confirmation, is designed to put an end to various claims and litigation involving nondebtors.
Continental, which technically is not a plan proponent (by choice), will, as part of a proposed settlement of the district court lawsuit against it, pay $6.45 million to plan proponents for distribution; the limited partnerships propose to pay $900,000.00 into the plan from an escrow fund established by an order of this court; and Somerman (or the Somerman group4) will pay $145,000.00 into the plan. The debtors proposed to pay $100,000.00 which is also located in an escrow fund. The distribution schemes are complex because of a desire by each plan funder to obtain releases from creditors of the debtors and from other plan funders.
Initially, by virtue of an earlier proposed plan, the plan funders sought to obtain discharges from any obligation they may have owed to creditors of these debtors. When various creditors brought to their attention the provisions of 11 U.S.C. § 524(e), see e.g., Underhill v. Royal, 769 F.2d 1426 (9th Cir.1985); In re Sago Palms Joint Venture, 39 B.R. 9 (Bankr.S.D.Fl. 1984), the plan funders altered course.
Relying, in part, upon the holding of In re AOV Industries, Inc., 792 F.2d 1140 (D.C.Cir.1986), the plan funders have proposed an amended plan with the following key provisions: All unsecured creditors of the debtor are placed into one class for voting purposes (here, class 9); however, depending upon the type of creditor, each creditor may choose to opt into one or more voluntary nonvoting classes (i.e. classes 7, 8, and 10). The funds provided by the nondebtor funders would be distributed only to members of the optional classes by various formulae. In return for receiving these funds, opting creditors must give releases to the plan funders. Whether or not they choose to participate in the optional classes, creditors in class 9 will share in the distribution of the $100,000.00 provided by the debtors.
There are other plan provisions, such as substantive consolidation, which have caught the eye of some creditors, but which need not be discussed in detail here. However, the results of the confirmation of the plan should be noted. Continental Bank, which asserts a secured claim exceeding $24 million, will end up controlling the stock of a new corporation called Monroe (Delaware), consisting of assets from the consolidated debtors; it will not receive any other distribution from the estate but will obtain...
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...plan, and the access by impaired creditors to relevant information from other sources." Id. (quoting In re Monroe Well Serv., Inc., 80 B.R. at 324, 330 (Bankr. E.D. Pa. 1987)). See also 5 Lawrence P. King, Collier on Bankruptcy § 1125.03[1], 1125-22 (courts should 'consider the needs of the......