In re Sabine Oil & Gas Corp.

• Decision Date: 21 April 2016
• Docket Number: Case No. 15-11835 Jointly Administered
• Citation: 548 B.R. 674
• Parties: In re: Sabine Oil & Gas Corporation, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

548 B.R. 674

In re: Sabine Oil & Gas Corporation, et al., Debtors.

Case No. 15-11835 Jointly Administered

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

Signed April 21, 2016

ROPES & GRAY LLP, Counsel to the Official Committee of Unsecured Creditors, 1211 Avenue of the Americas, New York, New York 10036, By: Mark R. Somerstein, Esq., Keith H. Wofford, Esq., D. Ross Martin, Esq., Douglas Hallward-Driemeier, Esq.,

KIRKLAND & ELLIS LLP,

KIRKLAND & ELLIS INTERNATIONAL LLP, Counsel to the Debtors, 601 Lexington Avenue, New York, New York 10022, By: Jonathan S. Henes, P.C., Christopher J. Marcus, P.C.

300 North LaSalle, Chicago, Illinois 60654, By: Gabor Balassa, P.C., A. Katrine Jakola, Esq.

LINKLATERS LLP, Counsel to Wells Fargo, National Association, as First Lien Agent,1345 Avenue of the Americas, New York, New York 10105, By: Margot B. Schonholtz, Esq., Robert H. Trust, Esq.

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Counsel to Wilmington Trust N.A. as Second Lien Agent, 1285 Avenue of the Americas, New York, New York 10019, By: Brian S. Hermann, Esq., Moses Silverman, Esq., Kyle J. Kimpler, Esq.

QUINN EMANUEL URQUHART & SULLIVAN, LLP, Counsel to FRC Founders Corporation, Sabine Investor Holdings LLC, First Reserve Fund XI, L.P., First Reserve GP XI, L.P., First Reserve GP XI, Inc., Alex Krueger, Brooks Shughart, Michael France, and Joshua Weiner, 51 Madison Avenue, 22nd Floor, New York, New York 10010, By: Andrew J. Rossman, Esq., Susheel Kirpalani, Esq., Julia M. Beskin, Esq.

SHEARMAN & STERLING LLP Counsel to Barclays Bank PLC and Barclays Capital Inc. 599 Lexington Avenue New York, New York 10022 By: Joseph J. Frank, Esq. Fredric Sosnick, Esq.

KASOWITZ, BENSON, TORRES & FRIEDMAN LLP, Counsel to Richard J. Carty, Loren Carroll, Dod Fraser, James Lee, James Lightner, Patrick R. McDonald, Raymond Wilcox, and Victor Wind, 1633 Broadway, New York, NY 10019, By: Kenneth R. David, Esq., Daniel A. Fliman, Esq.

CURTIS, MALLET-PREVOST, COLT & MOSLE, LLP, Counsel to Sabine Directors Duane Radtke, David Sambrooks, and John Yearwood, 101 Park Avenue, New York, New York 10178, By: Steven J. Reisman, Esq., Theresa A. Foudy, Esq.

BROWN RUDNICK LLP, Counsel to the Forest Notes Indenture Trustees, Seven Times Square, New York, New York 10036, By: Robert J. Stark, Esq., Daniel J. Saval, Esq.

AKIN, GUMP, STRAUSS, HAUER & FELD LLP, Co-counsel to The Bank of New York Mellon Trust Company, N.A. as Trustee under the 2017 Notes Indenture, One Bryant Park, New York, New York

10036, By: Daniel H. Golden, Esq. Philip C. Dublin, Esq. Abid Qureshi, Esq.

EMMET, MARVIN & MARTIN, LLP, 120 Broadway, 32nd Floor, New York, New York 10271, By: Edward P. Zujkowski, Esq., Thomas A. Pitta, Esq.

BENCH DECISION ON MOTION FOR STAY PENDING APPEAL

SHELLEY C. CHAPMAN

, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion (the "Motion") of the Official Committee of Unsecured Creditors (the "Committee") pursuant to Rules 8007

and 9006(b) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") for a stay pending appeal of this Court's order denying the STN Motions¹ [Docket No. 924] (the "STN Order"), which order followed entry of this Court's bench decision of March 31, 2016² [Docket No. 923] denying the STN Motions (the "Bench Decision"). By the Motion, the Committee seeks entry of an order to stay, pending the Committee's appeal of the STN Order,³ "(A) any action to cause the release of the estate causes of action in so-called ‘Bucket I’ and ‘Bucket III’ for which the Court has denied the Committee STN standing (the ‘Denied Claims') and (B) expiration of the Challenge Period Deadline as contemplated by the Cash Collateral Order."⁴

Objections to the Motion were filed by the above-captioned debtors and debtors in possession (the "Debtors")⁵ and Sabine Directors Duane Radtke, David Sambrooks, and John Yearwood (collectively, the "Sabine Directors").⁶ Joinders to the Debtors' objection were filed by (i) Wells Fargo, N.A., as First Lien Agent ("Wells Fargo");⁷ (ii) Wilmington Trust N.A., as Second Lien Agent;⁸ (iii) Barclays Bank PLC and Barclays Capital Inc.;⁹ (iv) FRC Founders Corporation, Sabine Investor Holdings LLC, First Reserve Fund XI, L.P., First Reserve GP XI, L.P., First Reserve GP XI, Inc., Michael France, Alex Krueger, Brooks Shughart, and Joshua Weiner (collectively, the "First Reserve Parties");¹⁰ and (v) former Forest Oil Corporation directors and officers Richard J. Carty, Loren Carroll, Dod Fraser, James Lee, James Lightner, Patrick R. McDonald, Raymond Wilcox, and Victor Wind.¹¹ On April 18, 2016, the Committee filed its Reply Memorandum in Further Support of the Motion (the "Reply").¹² Joinders to the Motion were filed by The Bank of New York Mellon Trust Company and by the Forest Notes Indenture Trustees.¹³ A hearing on the Motion was held on April 21, 2016.

By the Motion, the Committee argues that granting certain "protections" to the Committee pending appeal of the STN Order—more specifically, a stay of "any action to dispose of the Denied Claims" and a stay of the effectiveness of the STN Order to the extent it would cause the expiration of the Challenge Period Deadline—will enable the Court to avoid (i) any possible argument concerning foreclosure of the Committee's appellate rights and (ii) a jurisdictional conflict with Article III appellate courts.¹⁴ According to the Committee, the purported jurisdictional conflict would occur if (i) the Debtors proceed to confirmation on their proposed Amended Joint Chapter 11 Plan, dated March 31, 2016 [Docket No. 927] (the "Amended Plan"), which plan proposes releases of the Denied Claims, and (ii) the Court confirms the Amended Plan. Despite conceding that the alleged jurisdictional issue "is not ripe for decision at this time,"¹⁵ the Committee nevertheless argues that there is a considerable risk of harm to the Committee if a stay is denied, and it submits that it has satisfied the test for a stay pending appeal.

The Debtors argue that the Motion seeks relief different from and far beyond the request for the preservation of the status quo ordinarily implicated in a motion for a stay pending appeal; instead of asking for a narrowly tailored stay of the underlying STN judgment, the Motion astonishingly requests that the Court enjoin separate proceedings relating to the Debtors' proposed plan of reorganization until the STN appeal is adjudicated. Describing the Motion as an "attempt to manufacture a jurisdictional issue to divest this Court of authority to proceed to confirmation,"¹⁶ the Debtors assert that (i) the Committee's purported jurisdictional argument has no merit and (ii) the Committee fails to satisfy any of the four factors that comprise the test for a stay pending appeal. Joined by numerous other stakeholders in these cases, the Debtors submit that the Motion should be denied.

Discussion of "Divestiture of Jurisdiction" Argument

The Committee devotes a substantial portion of its motion papers to the argument that the "divestiture doctrine" divests this Court of jurisdiction to enter a confirmation order that would approve a release of the Denied Claims and, thus, this Court should grant the requested stay in order to avoid a "jurisdictional conflict" with an Article III court that may arise at confirmation.¹⁷ The Debtors argue in response that the Committee misstates the divestiture doctrine and that the case law undermines rather than supports the Committee's argument.¹⁸ The Court agrees.

The divestiture doctrine, in its simplest terms, provides that the filing of an appeal divests the lower court of its control over the issue or matter that is on appeal. Courts have held that the same legal principle applies to appeals of bankruptcy court orders. Dicola v. Am. S.S. Owners Mut. Prot. & Indem. Ass'n, Inc. (In re Prudential Lines, Inc.), 170 B.R. 222, 243 (S.D.N.Y.1994)

("Prudential Lines"). During the pendency of an appeal of a bankruptcy court order, however, the bankruptcy court is not divested of jurisdiction to enforce or implement the order being appealed, nor is the bankruptcy court divested of jurisdiction "to decide issues and proceedings different from and collateral to those involved in the appeal." In re Bd. Of Directors of Hopewell Int'l Ins. Ltd., 258 B.R. 580, 583 (Bankr.S.D.N.Y.2001) ; Prudential Lines, 170 B.R. at 243 ("while an appeal of an order or judgment is pending, the court retains jurisdiction to implement or enforce the order or judgment.... This is true because in implementing an appealed order, the court does not disrupt the appellate process so long as its decision remains intact for the appellate court to review."); Cibro Petroleum Prods., Inc. v. City of Albany (In re Winimo Realty Corp.), 270 B.R. 99, 105 (S.D.N.Y.2001) (same). "Courts have accordingly recognized a distinction in the divestment of jurisdiction between acts undertaken to enforce the judgment and acts which expand upon or alter it; the former being permissible and the latter prohibited." Prudential Lines, 170 B.R. at 243 (citing N.L.R.B. v. Cincinnati Bronze, Inc., 829 F.2d 585, 588 (6th Cir.1987) ). The application of the distinction in the case law between acts of enforcement and acts of alteration "is most germane in the context of a Chapter 11 bankruptcy case which involves the court's issuance of innumerable orders involving a myriad of issues, one or more of which may be on appeal at any given moment." Prudential Lines, 170 B.R. at 244.

Here, as the Sabine Directors point out, confirmation of a plan of reorganization containing releases of the Denied Claims would in no way alter the STN Order.¹⁹ Moreover, the issue of whether the Court should confirm a plan containing releases of certain claims is entirely distinct from the issue of whether the Court should grant the Committee standing to pursue such claims. The Committee's assertion that "ruling on a proposed release [at confirmation] will require this Court to decide an identical issue as the district court will during its...