In re Texaco Inc.

• Decision Date: 05 April 1988
• Docket Number: Bankruptcy No. 87 B 20142-87 B 20144.
• Citation: 84 BR 911
• Parties: In re TEXACO INC., Texaco Capital Inc., Texaco Capital N.V., Debtors.
• Court: U.S. District Court — Southern District of New York

84 B.R. 911 (1988)

In re TEXACO INC., Texaco Capital Inc., Texaco Capital N.V., Debtors.

Bankruptcy Nos. 87 B 20142-87 B 20144.

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

April 5, 1988.

COPYRIGHT MATERIAL OMITTED

Weil, Gotshal & Manges, New York City, for debtors.

Dewey, Ballantine, Bushby, Palmer & Wood, New York City, for The Chase Manhattan Bank.

Kronish, Lieb, Weiner & Hellman, New York City, for New York Life Ins. Co.

Kramer, Levin, Nessen, Kamin & Frankel, New York City, for General Committee.

Keck, Mahin & Cate, Chicago, Ill., for Equity Committee.

William J. Guste, Jr., Atty. Gen., Mary Ellen Leeper, Asst. Atty. Gen., Taylor, Porter, Brooks & Phillips, Special Counsel, Baton Rouge, La., for State of La.

Deramee & Deramee, Thibodaux, La., for La Fourche Parish School Bd., David Landry, of counsel.

DECISION ON MOTION BY CHASE MANHATTAN BANK FOR RELIEF FROM AUTOMATIC STAY

GOETTEL, District Judge.

Texaco Inc. and two of its subsidiaries have been involved in one of the most celebrated Chapter XI (debtor in possession) bankruptcy proceedings of modern times. Recently a plan has been approved by the Bankruptcy Court to bring them out of the proceedings. Last fall, Texaco made two motions for orders pursuant to the Bankruptcy Code, 11 U.S.C. § 365, approving its assumption of agreements with the State of Louisiana ("State") and the Lafourche Parish School Board ("School Board") of certain oil and gas leases. Thereafter, the State and the School Board moved to revoke the references to the Bankruptcy Court. These motions were referred to the Hon. Howard Schwartzberg, United States Bankruptcy Judge, for report and recommendation. On January 14, 1988, the Bankruptcy Court issued its recommendation that the reference withdrawal motions be denied. The State filed objections to the Bankruptcy Judge's recommendations. The School Board did not object. It has not been suggested by any party that the termination of the bankruptcy proceedings moots the State's motion.

The essential argument of the State is that the issue should not be decided in the Bankruptcy Court since it requires consideration of a non-Title XI law, namely, the Natural Gas Policy Act of 1978 ("NGPA"). Judge Schwartzberg, in his 32-page consideration of the issues, in his typical style, sets forth the factual background and discusses the legal issues with meticulous care. Since no objections are raised to his detailing of the factual background, we will not repeat those facts. Judge Schwartzberg recommended that the reference should not be withdrawn pursuant to 28 U.S.C. § 157(d) for four reasons:

1. There are threshold issues which may render academic any consideration of the NGPA;

2. The State may lack standing to litigate NGPA issues;

3. In any event, the application of the NGPA to this proceeding does not require any substantial and material interpretation of the Act but merely pro forma application of the Act to the facts of this case;

4. No cause has been shown for a discretionary withdrawal of the reference under 11 U.S.C. § 365.

We agree with Judge Schwartzberg's interpretation of the issues and adopt his recommendations. There are threshold issues that would preclude any consideration of the NGPA.¹ There is also a respectable argument to be made that the State has no private right of action under the NGPA. (The State argues that the royalties payable should not be based on the contract price but on the market value of the gas sold, which requires interpretation of the NGPA.) Judge Schwartzberg concluded that only the Federal Energy Regulatory Commission has jurisdiction over the issues which arise under the NGPA and it is not a party to these proceedings.²

Most significantly, Judge Schwartzberg concluded that if consideration of the NGPA is necessary and if the State has a right to pursue such issues, its consideration would be a routine matter and not "substantial and material" as is required in withdrawing a reference from the Bankruptcy Court.

"It is issues requiring significant interpretation of federal laws that Congress would have intended to have decided by a district judge rather than a bankruptcy judge."

United States v. Johns-Manville Corp., (In re Johns-Manville Corp.), 63 B.R. 600 (S.D.N.Y.1986) (emphasis in original). If the NGPA must be referred to for purposes of setting royalties, it would be a straightforward application of a federal statute to the leases in question. The only aspect that makes application of the Act at all difficult is the shifting nature of the State's arguments with respect to it. It is the import of the State's arguments and not the application of the statute that is complex. We agree, therefore, that the reference need not be withdrawn as a matter of law and, finally, that no good cause for discretionary revocation has been demonstrated. Consequently, the State's and the School Board's motions requesting revocation are denied in all respects.

SO ORDERED.

RECOMMENDATIONS WITH REGARD TO MOTIONS FOR WITHDRAWAL OF REFERENCE

HOWARD SCHWARTZBERG, Bankruptcy Judge.

The State of Louisiana (the "State") and the Lafourche Parish School Board ("Lafourche") have filed motions with the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 157(d) for the withdrawal of the reference with respect to Texaco's motions for the assumption of certain natural gas leases which it entered into with the State and Lafourche. The State and Lafourche claim that the debtor, Texaco, underpaid royalties due them for natural gas that was sold by Texaco to its customers which was attributable to gas leases entered into between the State and Lafourche, as lessors and Texaco as lessee. The State and Lafourche contend that the resolution of Texaco's lease assumption motions requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce, namely The Natural Gas Policy Act, 15 U.S.C. § 3301, et seq. ("NGPA").

Pursuant to an order of the United States District Court, to whom the State and Lafourche applied for the removal of the reference, District Court Judge Goettel has referred the withdrawal motions to this court for the purpose of making recommendations with respect to the disposition of such motions. The parties expressly consented at the hearing held in this court that this court shall submit such recommendations to the District Court.

FACTUAL BACKGROUND

1. On April 12, 1987, the debtor, Texaco Inc. and its two wholly owned financial subsidiaries, Texaco Capital Inc. and Texaco Capital N.V., filed with this court their separate petitions for reorganizational relief under Chapter 11 of the Bankruptcy Code. Pursuant to an order issued by this court on that day the cases were directed to be jointly administered in accordance with Bankruptcy Rule 1015(b).

2. Texaco Inc. is operating its business as a debtor in possession pursuant to 11 U.S.C. §§ 1107(a) and 1108.

3. By order dated July 10, 1987, this court established a procedure for Texaco's preservation of its oil and gas agreements and for all parties to those agreements to protect their interests (the "Procedure Order").

4. Pursuant to the Procedure Order, Texaco filed a motion dated September 15, 1987, for an order in the alternative, either (a) approving Texaco's assumption of ninety Oil and Gas Agreements (the "TL Agreements") it has with the State of Louisiana and finding an absence of any defaults thereunder on a final basis and not subject to subsequent audit, or (b) determining that any Agreement that cannot be assumed is neither an executory contract nor an unexpired lease for purposes of 11 U.S.C. § 365. See Delta Energy Resources, Inc. v. Damson Oil Corp., 72 B.R. 7, 11 (W.D.La.1985) (under Louisiana Law, a mineral lease was held to be treated as a real right, an incorporeal immovable, which is not the conventional lease contemplated by 11 U.S.C. § 365, but is in fact a real right in favor of another); In re Heston Oil Co., 69 B.R. 34 (N.D.Okl.1986). (An oil and gas lease is not an unexpired lease or executory contract within the purview of 11 U.S.C. § 365 but is in the nature of an estate in real property having the nature of a fee). But see In re Gasoil, Inc., 59 B.R. 804 (Bankr.N.D.Ohio 1986); In re P.I.N.E., Inc., 52 B.R. 463 (Bankr.W.D.Mich.1985); In re Integrated Petroleum Co., Inc., 44 B.R. 210 (Bankr.W.D.Ohio 1984) (oil and gas leases treated as assumable or rejectable contracts).

5. On September 17, 1987, Texaco filed a similar motion (the Lafourche Assumption motion) for an order in the alternative, either (a) approving Texaco's assumption of the lease and finding the absence of any defaults thereunder on a final basis not subject to subsequent audit, or (b) determining that if the lease cannot be assumed, it is neither an executory contract nor an unexpired lease within the meaning of 11 U.S.C. § 365.

6. Both the State and Lafourche responded by requesting various forms of relief including change of venue motions whereby the State and Lafourche seek orders transferring venue of the assumption of leases motions. By motion dated October 8, 1987 the State requested a transfer of venue to the United States District Court for the Middle District of Louisiana, where the State has pending against Texaco a prepetition Declaratory Judgment Action for cancellation of the leases in question because of Texaco's alleged default with respect to 44 leases to the extent of approximately $386,951,328. Lafourche seeks an order transferring venue of the Lafourche Assumption motion to the United States Bankruptcy Court for the Eastern District of Louisiana.

7. Pursuant to a Peremptory Objection dated October 14, 1987, the State requested an order denying Texaco's assumption motion. The Objection contained a detailed listing of the State's conclusions and specifications as to various alleged defaults by Texaco, including claims for...