In re Orion Refining Corp.

• Decision Date: 20 July 2007
• Docket Number: Adversary No. 04-52447 (MFW).,Bankruptcy No. 03-11483 (MFW).
• Citation: 372 B.R. 688
• Parties: In re ORION REFINING CORPORATION, Debtor. Fluor Enterprises, Inc., Plaintiff, v. Orion Refining Corporation, Cypress Associates, LLC as ORC Distribution Trust Representative, Defendant. Orion Refining Corporation, Counter-Claimant, v. Fluor Enterprises, Inc., Counter-Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

372 B.R. 688

In re ORION REFINING CORPORATION, Debtor.

Fluor Enterprises, Inc., Plaintiff, v.Orion Refining Corporation, Cypress Associates, LLC as ORC Distribution TrustRepresentative, Defendant.

Orion Refining Corporation, Counter-Claimant, v.Fluor Enterprises, Inc., Counter-Defendant.

Bankruptcy No. 03-11483 (MFW).

Adversary No. 04-52447 (MFW).

United States Bankruptcy Court, D. Delaware.

July 20, 2007.

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William H. Sudell, Donna L. Culver, Thomas W. Briggs, Jr., Morris, Nichols, Arsht & Tunnell, LLP, Wilmington, DE, for ORC Distribution Trust.

Francis A. Monaco, Kevin J. Mangan, Monzack and Monaco, P.A., Wilmington, DE, Joseph B.C. Kluttz, Kennedy Covington, Charlotte, NC, for Fluor Enterprises, Inc.

OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court are the Complaint and Motion of Fluor Enterprises, Inc.("Fluor") seeking payment of its pre-petition claims totaling $20,657,860.58 on theories of breach of contract, promissory estoppel, misrepresentation, and under the Critical Fire Vendor Order entered by the Court early in this chapter 11 case.The ORC Distribution Trust (the "Trust") opposes the relief sought.For the reasons set forth below, the Court will grant the relief requested by Fluor and direct the payment of its claims in full.

I.BACKGROUND

The background of this case is reflected in the Court's Opinion dated May 9, 2006, and in the Court's Findings of Fact ("FOF") which are attached hereto and incorporated herein by reference.A summary of the relevant facts is presented here.

Orion Refining Corporation("Orion") operated an oil refinery in Norco, Louisiana (the "Refinery").On May 20, 2002, it executed a Master Service Agreement (the "MSA") with PSC Industrial Outsourcing, Inc.("PSC"), which was subsequently assigned to Fluor on March 3, 2003.The MSA called for PSC (and Fluor) to perform various services, including management, mechanical, industrial, and oil spill/hazardous material emergency response services at the Refinery.

On January 29, 2003, the Refinery (and principally its coker unit) was damaged by fire.As a result, Orion determined to expand PSC's duties under the MSA to make it the general contractor for the repair of the coker unit.Orion thereafter issued hundreds of Work Assignments to PSC, and later to Fluor, under the MSA for the repair of the coker unit.

Orion filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on May 13, 2003(the "Petition Date").Orion also filed a Motion for Authority to Pay Certain Fixed, Liquidated and Undisputed Prepetition Claims of Fire Vendors, Mechanics and Materialmen (the "Critical Fire Vendor Motion") and a separate Motion for Authority to Pay Prepetition Obligations of Certain Critical Vendors and Service Providers Pursuant to Sections 105(a)and363(b) of the Bankruptcy Code(the "Critical Vendor Motion").(FOF 71)

As the general contractor on the coker rebuild, Fluor was the largest and most important of the Critical Fire Vendors.(FOF 31, 33-34, 53-54, 57, 63-64, 83, 85, 95, 97-98, 105, 111, 136, 144-46)On numerous occasions (both before and after the bankruptcy case was filed), Orion emphasized to Fluor the importance of Fluor staying on the job and finishing the coker rebuild in a timely fashion.(FOF 53-54, 63-64, 93, 95, 97-98, 103-107, 111)Orion's representatives told Fluor that if it finished the coker rebuild, its pre-petition claims would be treated as Critical Fire Vendor claims and paid in full.(FOF 53-54, 63-64, 93, 95, 97-98, 103-107, 111)Fluor continued on the job and the coker rebuild was finished ahead of schedule on June 5, 2003, approximately three weeks after the Petition Date.(FOF 112-13)

Shortly after it had filed for bankruptcy, Orion filed a Motion for approval of a sale of the Refinery to Valero Energy Corporation and Valero Refining — New Orleans, LLC(collectively "Valero").The purchase agreement contemplated that the Refinery would be repaired before closing on the sale; if not, funds would be escrowed until completion.The Court granted the sale motion on June 26, 2003.

After the sale closed in early July 2003, Orion refused to pay Fluor's pre-petition claims, asserting that it had claims against Fluor as well.(FOF 125)On August 17, 2005, Orion filed an action against Fluor in Louisiana, alleging that the Refinery fire was caused by the negligence and other wrongful acts of Fluor.(FOF 126)

On February 4, 2004, Fluor filed a Complaint against Orion to recover its prepetition claims for fire restoration, maintenance, and the work done on the coker rebuild.(FOF 4)The Complaint contained four counts.Count I asserted a mechanics' hen against the Refinery under the Louisiana Private Works Act and thus, the right to sale proceeds placed in escrow.(Id.)Count II alleged fraud and misrepresentation.(Id.)Count III asserted promissory estoppel.(Id.)Count IV asserted a constructive trust against the sale proceeds.(Id.)On June 3, 2004, Fluor filed a Motion for Relief from Previously Entered Critical Fire and Trade Vendor Orders ('Motion for Relief'), which also sought payment of the prepetition claims.(F'OF 7)The Trust² opposed both the Motion and the Complaint.(FOF 5,8)

In an Opinion dated May 9, 2006, the Court denied Fluor's motion for partial summary judgment and granted the Trust's motion for partial summary judgment on Counts I and IV of the Fluor Complaint.(FOF 10)The Court held that Fluor could not recover under Count I because under the MSA it had waived its right to impose a mechanics' lien.Fluor Enterprises, Inc. v. Orion Refining Corp.(In re Orion Refining Corp.),341 B.R. 476, 481(Bankr.D Del.2006).The Court further concluded that Count IV failed because Louisiana law (the law applicable to the issue) did not recognize the remedy of constructive trust.Id. at 482-85.³

In an Order dated July 27, 2006, the Court determined that Fluor could continue to prosecute its action asserting that Orion was obligated to pay Fluor's prepetition claims in full based on its contention that (1) there was an agreement between Fluor and Orion that Fluor was a Critical Fire Vendor and that its pre-petition claims would he paid in full if it completed the coker rebuild or (2) Orion misrepresented that Fluor would be paid in full when the coker rebuild was done and Fluor detrimentally relied on those misrepresentations by completing that work.The Court ordered a consolidated trial of Fluor's Complaint and its Motion for Relief on those two theories.

Trial was held on May 7, 8, and 9, 2007.Post-trial briefs were filed by the parties on June 20 and July 5, 2007.The matter is ripe for decision.

II.JURISDICTION

This is a core proceeding, and the Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334and157(b)(2)(A), (B), & (0).

III.DISCUSSION

A.Choice of Law

Fluor's claims for breach of contract and misrepresentation arise under state common law.See, e.g., United States v. Texas,507 U.S. 529, 534, 113 S.Ct. 1631, 123 L.Ed.2d 245(1993)(holding that fraud claims arise under state law);In re III Enterprises, Inc.,163 B.R. 453, 459(Bankr.E.D.Pa.1994)(concluding that issue of whether a valid contract exists is a question of state law).

Both federal common law and Delaware law apply section 188 of the Restatement (Second) Conflict of Laws.See, e.g., In re Miller,292 B.R. 409, 413(9th Cir. BAP2003);Oliver B. Cannon & Son v. Dorr-Oliver, Inc.,394 A.2d 1160, 1166(Del.1978);Viking Pump, Inc. v. Liberty Mut. Ins. Co., No. Civ. A. 1465-VCS, 2007 WL 1207107, at *26 n. 113(Del.Ch.Apr.13 2007).Section 188 of the Restatement weighs various factors in determining which law to apply, including: (1) where the contract was negotiated, (2) the place of performance, (3) the location of the subject matter of the contract, and (4) the place of incorporation and place of business of the contracting parties.See, e.g., Viking Pump,2007 WL 1207107, at *26 n. 113;Miller,292 B.R. at 413.In this case, those factors weigh in favor of applying Louisiana law.The statements by representatives of Orion which support Fluor's claims were all made in Louisiana.Fluor's performance occurred in Louisiana.The subject of the alleged agreement was the coker unit, which was located at the Refinery in Louisiana.Orion's business was at all relevant times located in Louisiana.

Consequently, under both federal common law and Delaware's conflict of laws rules, Fluor's claims are governed by Louisiana law.See alsoOrion Ref Corp.,341 B.R. at 484-85.

B.Agreement to Pay Pre-Petition Claims

Fluor asserts that an agreement was reached between it and Orion whereby Orion agreed to pay Fluor's pre-petition claims in full if Fluor completed the coker rebuild without delay.Fluor presented evidence of numerous conversations and meetings it had with Orion's representatives establishing that agreement.(FOF 53-54, 63-64, 93, 95, 97-98, 103-07, 111)

Under Louisiana law, there are four elements necessary for a contract: (1) capacity, (2) consent, (3) lawful cause, and (4) an object.La. Civ.Code Ann. arts. 1918, 1927, 1966, 1971(1987).See, e.g., Prestridge v. Elliott,847 So.2d 789, 791-92(La.Ct.App.2003).Fluor bears the burden of establishing all four elements by a preponderance of the evidence.See, e.g., Adams v. Commercial Nat. Bank in Shreveport,661 So.2d 636, 639(La.Ct.App.1995).

1.Capacity

The oral statements upon which Fluor relies are primarily statements of Eric Bluth, Orion's Chief Operating Officer.(FOF 53-54, 63-64, 93, 95, 97-98, 103-07, 111)As COO and the senior client representative for Orion in its relationship with Fluor, Bluth had actual authority to bind Orion."All persons have capacity to contract, except unemancipated minors, interdicts, and persons deprived of reason at the time of contracting."La. Civ.Code Ann. art.1918(1987)."The principal...