In re Semcrude

• Decision Date: 03 March 2011
• Docket Number: Adversary No. 09–51003.,Bankruptcy No. 08–11525 (BLS).
• Citation: 443 B.R. 472
• Parties: In re SEMCRUDE, L.P., et al., Reorganized Debtors.Plains Marketing, L.P., Plaintiff,v.Bank of America, N.A. as Agent; Eaglwing, L.P.; Mull Drilling Company, Inc.; Murfin Drilling Company, Inc.; Samson Contour Energy E & P, LLC; Samson Lone Star, LLC; Samson Resources Company; SemCrude, L.P.; St. Mary Land & Exploration Company; Vess Oil Corporation; and John Does 1–100, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

443 B.R. 472

In re SEMCRUDE, L.P., et al., Reorganized Debtors.Plains Marketing, L.P., Plaintiff,
v.
Bank of America, N.A. as Agent; Eaglwing, L.P.; Mull Drilling Company, Inc.; Murfin Drilling Company, Inc.; Samson Contour Energy E & P, LLC; Samson Lone Star, LLC; Samson Resources Company; SemCrude, L.P.; St. Mary Land & Exploration Company; Vess Oil Corporation; and John Does 1–100, Defendants.

Bankruptcy No. 08–11525 (BLS).

Adversary No. 09–51003.

United States Bankruptcy Court, D. Delaware.

March 3, 2011.

[443 B.R. 474]

Bradford J. Sandler, Pachulski Stang Ziehl & Jones LLP, Wilmington, DE, John Zavitsanos, Demetrios Anaipakos, Ariadne Montare, Michael Murphy, Ahmad, Zavitsanos & Anaipakos, P.C., Houston, TX, for Plaintifs Plains Marketing, L.P.Ian Conner Bifferato, Thomas F. Driscoll III, Kevin G. Collins, Wilmington, DE, R. Richard Love, III, Jason S. Taylor, Andrew R. Turner, Conner & Winters, LLP, Tulsa, OK, for Defendants SemCrude, L.P. and SemGroup, L.P.

OPINION ¹ BRENDAN LINEHAN SHANNON, Bankruptcy Judge.

Before the Court is a motion filed by Plains Marketing, L.P. (“Plains”) for leave to file an amended complaint (the “Motion”) [Adv. Docket No. 175], pursuant to which Plains seeks, inter alia, to amend its Complaint for Declaratory Relief to Determine the Validity and Priority of Asserted Liens and Permit Final Payments to Debtors for Prepetition Crude Purchases (the “Original Complaint”) [Adv. Docket No. 1], by which it initiated this adversary proceeding, to add the following two claims for relief against SemCrude, L.P. and Eaglwing, L.P. (collectively, the “Debtors”): (1) a claim for recoupment of its damages for the Debtors' alleged breach of warranty of title as provided in certain purchase agreements between Plains and the Debtors; and (2) a claim for indemnification, as provided in certain netting agreements between Plains and the Debtors, for its attorneys' fees and litigation costs incurred in actions that have been asserted against Plains on account of its transactions with the Debtors. For the foregoing reasons, the Court will grant the Motion.

I. BACKGROUND

On July 22, 2008 and October 22, 2008, the Debtors voluntarily filed their respective petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in this Court. Prior to filing for bankruptcy, the Debtors had engaged in the business of purchasing crude oil and natural gas from certain producers of oil and gas (collectively, the “Producers”), and subsequently reselling such oil and gas to certain downstream purchasers (the “Downstream Purchasers”). As one of the Downstream Purchasers, Plains had purchased crude oil from the Debtors prior to the commencement

[443 B.R. 475]

of the Debtors' bankruptcy case pursuant to various purchase agreements (the “Purchase Agreements”) and netting agreements (the “Netting Agreements”).

In advance of the date by which a party had to file its claims against the Debtors (the “Bar Date”) set by Order of the Court (the “Bar Date Order”) [Docket No. 2746] for March 3, 2009, Plains filed a total of seven proofs of claim against the Debtors, in which it asserted its right to reclamation, 11 U.S.C. § 503(b)(9) payments, and contract remedies under the Purchase Agreements and the Netting Agreements.

Pursuant to the Purchase Agreements and the Netting Agreements, Plains remitted to the Debtors a substantial portion of the monies that it owed to the Debtors for the crude oil it received. In the Order for Payment of Funds to Debtors (the “Turnover Order”) [Adv. Docket No. 52] entered on October 5, 2009, the Court found that the Debtors and Plains had agreed that, to the extent that netting was authorized and legally permitted, Plains owed the Debtors an additional $2,484,019.74 (the “Final Settlement Amount”). By the Turnover Order, the Court ordered Plains to tender the Final Settlement Amount into an account over which the Court would retain jurisdiction pending further order of the Court. Shortly thereafter, on October 28, 2009, the Court entered an order (the “Confirmation Order”) [Docket No. 6347] confirming the Debtors' Fourth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”) [Docket No. 5808].

On May 29, 2009, prior to the entry of the Turnover Order, Plains filed the Original Complaint to initiate the instant adversary proceeding. By the Original Complaint, Plains asserted that upon tender of the Final Settlement Amount, it would no longer be liable to the Debtors or any third parties on account of the crude oil it purchased from the Debtors.

On May 25, 2010, Plains filed the Motion seeking to amend the Original Complaint to (1) request declaratory relief against other previously unnamed Producers who had filed actions against Plains in various state courts, and (2) assert additional claims against the Debtors. On July 30, 2010, the Court entered an Order [Adv. Docket No. 246] permitting Plains to amend the Original Complaint to name the additional defendants. The Court reserved judgment on Plains's request to assert the additional claims against the Debtors. It is to this issue that the Court now turns.

II. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of this adversary proceeding constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (E), and (O).

III. DISCUSSION

By the Motion, Plains seeks leave to file its amended complaint (the “Amended Complaint”) [Adv. Docket No. 175, Ex. 1] to include additional claims against the Debtors. These additional claims are articulated in the sixth and seventh claims for relief in the Amended Complaint. By the sixth claim for relief, Plains asserts its right of recoupment against the Debtors arising from the Debtors' alleged breach of warranty of good title to the crude oil which the Debtors sold to Plains under the Purchase Agreements. By the seventh claim for relief, Plains asserts its right of indemnity against the Debtors for attorneys' fees, litigation costs, and other damages pursuant to the Netting Agreements.

[443 B.R. 476]

Alternatively, in the event that the Court does not grant Plains leave to file the Amended Complaint, Plains seeks leave to amend its proofs of claim to incorporate its claims for indemnity and breach of warranty in its timely filed proofs of claim.

Federal Rule of Civil Procedure 15(a), made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7015, provides that “[t]he court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a). Accordingly, the Court has substantial discretion to grant or deny a motion for leave to amend. The United States Supreme Court and the Court of Appeals for the Third Circuit have each held that leave to amend should be freely given absent a showing by the non-moving party of one of the following grounds for denial: (1) undue delay; (2) bad faith or dilatory motive; (3) repeated failure to cure deficiencies by amendments previously allowed; (4) undue prejudice to the opposing party by virtue of allowance of the amendment; or (5) futility of the amendment. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (“The policy of the [F]ederal [R]ules is to permit liberal amendment to facilitate determination of claims on the merits and to prevent litigation from becoming a technical exercise in the fine points of pleading.”); Cureton v. Nat'l Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir.2001); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir.1997) (“Among the grounds that could justify a denial of leave to amend are undue delay, bad faith, dilatory motive, prejudice, and futility.”); see also Tracinda Corp. v. DaimlerChrysler AG (In re DaimlerChrysler Sec. Litig.), 200 F.Supp.2d 439, 443 (D.Del.2002); In re Global Link Telecom Corp., 327 B.R. 711, 718 (Bankr.D.Del.2005); Valley Media, Inc. v. Borders, Inc. (In re Valley Media, Inc.), 288 B.R. 189, 193 (Bankr.D.Del.2003).

In their objection (the “Objection”) [Adv. Docket No. 196], the Debtors argue that the Motion should be denied on the grounds of futility, undue prejudice, and undue delay. The Court finds that none of these grounds provides a sufficient basis for denying the Motion.

A. Futility

It is well established in the Third Circuit that the Court may refuse to grant leave to amend a complaint where the amendment would be futile. See, e.g., In re Alpharma Inc. Sec. Litig., 372 F.3d 137, 153 (3d Cir.2004) (citations omitted). An amendment is futile if “the complaint, as amended, would fail to state a claim upon which relief could be granted.” In re Burlington, 114 F.3d at 1434 (citing Glassman v. Computervision Corp., 90 F.3d 617 (1st Cir.1996)). Consequently, the Third Circuit and the Bankruptcy Court in this District have each held that “a trial court may properly deny leave to amend where the amendment would not withstand a motion to dismiss.” Massarsky v. Gen. Motors Corp., 706 F.2d 111, 125 (3d Cir.1983); PCT v. Authentic Specialty Foods, Inc. (In re Fleming Companies., Inc.), 347 B.R. 163, 167–68 (Bankr.D.Del.2006) (citing Rouge Steel Co. v. OmniSource Corp. (In re Rouge Indus., Inc.), No. 03–13272, Adv. No. A 05–52242, 2006 WL 148946, at *2 (Bankr.D.Del. Jan.19, 2006)); see also, Vision Metals, Inc. v. SMS Demag, Inc. (In re Vision Metals, Inc.), 311 B.R. 692, 701 (Bankr.D.Del.2004) (“ ‘Futility’ of amendment is shown when the claim or defense is not accompanied by a showing of plausibility sufficient to present a triable issue.”) (internal quotation marks omitted) (quoting

[443 B.R. 477]

Quality Botanical Ingredients, Inc. v. Triarco Indus., Inc. (In re Quality Botanical Ingredients, Inc.), 249 B.R. 619, 629 (Bankr.D.N.J.2000)).

1. Bar Date Violation

The Debtors argue that the Amended Complaint is futile because the...