In re Tri-Union Development Corp., 03-44908-H1-11.

• Decision Date: 09 September 2004
• Docket Number: No. 03-44908-H1-11.,03-44908-H1-11.
• Citation: 314 B.R. 611
• Parties: In re TRI-UNION DEVELOPMENT CORPORATION, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Texas

314 B.R. 611

In re TRI-UNION DEVELOPMENT CORPORATION, et al., Debtors.

No. 03-44908-H1-11.

United States Bankruptcy Court, S.D. Texas, Houston Division.

September 9, 2004.

COPYRIGHT MATERIAL OMITTED

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Patrick L. Hughes, JoAnn Lippman, Eric B. Terry, Haynes & Boone, LLP, Houston, TX, Paul Joseph Goodwine, Schully, Robberts, Slattery, Jaubert & Marino, PLC, New Orleans, LA, for Tri-Union Development Corp., et al.

Nancy Lynne Holley, Houston, TX, U.S. Trustee.

Mark Wayne Mehnert, Phil F. Snow, Jr., Ware Snow, Fogel & Jackson, LLP, Houston, TX, for Creditor Committee.

Philip G. Eisenberg, Mark A. Chevez, Omer F. Kuebel, III, Elizabeth C. Freeman, Locke, Liddell & Sapp, Houston, TX, for Greenwich Insurance Co. and BP Exploration and Production, Inc.

Robin B. Cheatham, Lisa Merz, Dean Ferguson, Adams and Reese, LLP, New Orleans, LA, for Apache Corp.

Kelley Abbott Hammon, Mickinney & Cooper, LLP, Houston, TX, for Mariner Energy, Inc.

William L. Wallander, Duston K. McFaul, Vinson and Elkins, Dallas, TX, for Ad Hoc Committee of Majority Noteholders.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

MARVIN ISGUR, Bankruptcy Judge.

The Debtors' Motion for Summary Judgment Regarding Objection and Motion for Order Disallowing Contingent Claims is granted in part and denied in part. Greenwich Insurance Company's Cross Motion for Summary Judgment is denied.

Background

Tri-Union Development Corporation and Tri-Union Operating Company (hereinafter " Debtors" or "Tri-Union")¹ are oil and gas exploration, development, and production companies with oil and natural gas reserves located in Texas, the Gulf of Mexico, and California. Tri-Union previously filed for protection under Chapter 11 of the Bankruptcy Code in March of 2000. Tri-Union emerged from its prior bankruptcy case under a confirmed plan of reorganization in June, 2001. The present bankruptcy case was commenced on October 20, 2003. The case was referred to the Bankruptcy Court pursuant to the District Court's standing order of reference.²

Tri-Union owns and operates offshore oil and gas blocks and related ancillary personal property comprising drilling production facilities, pipelines, and well bores located in the Gulf of Mexico on the Outer Continental Shelf (the "OCS Properties").³ The OCS Properties are generally leased from, and regulated by, the Minerals Management Service ("MMS"). The Debtors are — or were — also parties to various joint operating and similar development agreements affecting the OCS Properties.⁴

As the owner or operator of offshore oil and gas wells, platforms, and other production facilities, Tri-Union had certain obligations to plug and abandon several offshore wells, remove offshore oil and gas platforms, pipelines, and facilities, conduct site clearance operations, and perform additional decommissioning activities (the "Offshore P & A Obligations"). The parties dispute whether the Debtors' Offshore P & A Obligations remain enforceable in this bankruptcy case.

Under the prior confirmed plan, Tri-Union was required to post surety bonds to assure the satisfaction of the Offshore P & A Obligations. Effective on July 2, 2001, Tri-Union, as obligor, arranged the issuance of surety bonds from Greenwich Insurance Company ("Greenwich") in favor of the MMS, as beneficiary. The surety bonds in favor of the MMS, and for the benefit of Tri-Union, are required by applicable federal regulations. See 30 C.F.R. § 256.52, et seq. These bonds include a $3 million area-wide surety bond and various supplemental bonds in the aggregate amount of $9.75 million (the "Surety Bonds"). Tri-Union collateralized the Surety Bonds with approximately $4.5 million.⁵ The MMS may call the Surety Bonds if it determines that Tri-Union is unable to fulfill its offshore P & A Obligations. 30 C.F.R. 256.59. MMS has requested that Tri-Union commence Offshore P & A Operations for various properties.⁶

If Tri-Union does not satisfy the Offshore P & A Obligations, the MMS can make demand upon and sue to draw down on the Surety Bonds. See 30 C.F.R. 256.59. If Tri-Union cannot or does not extinguish its Offshore P & A Obligations, and if the Surety Bonds are not called, or if the Surety Bonds prove insufficient to pay for all P & A Operations, then the MMS may also call upon the Co-Lessees and Predecessors in Title for payment because such entities are co-responsible with Tri-Union. 30 C.F.R. 250.1701, 30 C.F.R. 256.62, 30 C.F.R. 256.64, and related authority.

On April 15, 2004, the MMS filed a Proof of Claim in the bankruptcy case (the "MMS Claim"). The MMS alleges that its $24.1 million claim is payable as an administrative expense entitled to priority distribution under § 507(a)(1) of the Bankruptcy Code. The Co-Lessees, the Predecessors in Title and Greenwich have also filed proof of claims. On January 29, 2004 Tri-Union filed its Objection and Motion for Order Disallowing Contingent Claims Held by (I) Greenwich Insurance Company, (II) Certain Co-Lessees, and (III) Certain Predecessors in Title Pursuant to Section 502(e). The parties have each filed cross motions for summary judgment and voluminous briefs regarding the motion.

Summary Judgment Standard

"A motion for summary judgment is proper only if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Pluet v. Frasier, 355 F.3d 381, 383 (5th Cir.2004). An issue is material if its resolution could affect the outcome of the action. Wyatt v. Hunt Plywood Co. Inc., 297 F.3d 405, 409 (5th Cir.2002). In deciding whether a fact issue has been created, the Court views the facts and the inferences to be drawn from them in the light most favorable to the nonmoving party. St. David's Health Care Sys. v. United States, 349 F.3d 232, 234 (5th Cir.2003) (citing Wyatt, 297 F.3d at 409).

11 U.S.C. § 502(e)

The first issue presented by the parties is whether the Debtors' obligations to Greenwich, the Co-lessees and Predecessors in Title, must be disallowed under § 502(e).⁷ Section 502(e) provides, in relevant part, as follows:

Notwithstanding subsections (a), (b), and (c) of this section and paragraph (2) of this subsection, the court shall disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on or has secured the claim of a creditor, to the extent that ... such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution.

Because the respondents' proofs of claim satisfy FED. R. BANKR. P. 3001(f), the proofs of claim constitute prima facia evidence of the validity and amount of the claims. See In re Beverages Int'l, Ltd., 50 B.R. 273, 276 (Bankr.D.Mass.1985) (noting debtor's objection to claim does not deprive the claim of presumptive validity). Thus, the burden for disallowance of the respondents' claims under § 502(e) is on Tri-Union.

As an initial matter, the parties dispute whether the respondents' claims are contingent. While the Court believes that the claims are likely to occur, for purposes of § 502(e)(1)(B), "contingent" in this context means "unfunded." Thus claims remain "contingent" for purposes of Bankruptcy Code § 502(e)(1)(B) until the co-debtor has paid the creditor. See, e.g., In re Friendship Child Dev. Ctr., 164 B.R. 625 (Bankr.D.Minn.1992); In re Amatex Corp., 110 B.R. 168 (Bankr.E.D.Pa.1990); In re Early & Daniel Indus., Inc., 104 B.R. 963 (Bankr.S.D.Ind.1989); In re Baldwin-United Corp., 55 B.R. 885 (Bankr.S.D.Ohio 1985). Because the MMS has yet to call on any of the respondents to fund the P & A Obligations, the P & A Obligations remain unfunded, and are thus contingent as envisioned by § 502(e).

After determining that the claims are contingent, it is necessary to examine whether the responding parties are "liable with the debtor." In order for § 502(e)(1) to apply, "[t]here must exist ... a shared liability to the same party on the same claim." COLLIER ON BANKRUPTCY, Vol. 4 at ¶ 502.06[2][b]. Greenwich, the Co-lessees and the Predecessors in Title, (the "Respondents") acknowledge that the Respondents are liable for the P & A Obligations under state and federal law, and thus there is no real controversy. Regardless of this acknowledged joint liability, the Respondents allege their claims are not subject to § 502(e) disallowance under a "direct obligation theory." Under the direct obligation theory, the Respondents argue that the Debtors' independent contractual duty⁸ to each respondent to perform the P & A Obligations comprises a direct claim against the Debtors. The Respondents then reason that this direct claim is not subject to § 502(e) disallowance because the claim does not meet the requirement of "liable with the debtor." Thus the Respondents essentially argue that their claims are not based on the joint obligation to the federal and state agencies, but on the direct claims arising under their respective contracts.

As support for their direct obligation theory, the Respondents refer the Court to In re Allegheny Intern., Inc. 126 B.R. 919 (W.D.Pa.1991). Allegheny involved a purchaser of contaminated real property filing a claim against the debtor to recover sums that the purchaser had expended and would expend in the future to remediate hazardous wastes at the purchased sites. Id. at 920. The debtor objected arguing that the claim was barred under § 502(e)(1)(B). Id. Deciding that § 502(e)(1)(B) did not disallow the claim, the Pennsylvania District Court's analysis focused on whether the purchaser was "liable with the debtor" to state and federal environmental agencies for the remediation costs. Id. at 920. The court reasoned that because the claim was based on a "direct action for recovery of response costs" — as authorized by federal statute — the claim was not the same as the environmental agency claims. Id. at 922. The court further noted, "[s]ection 502(e) is not a means of...