Official Comm. of Unsecured Creditors v. Moeller (In re Age Ref., Inc.)
| Decision Date | 16 September 2015 |
| Docket Number | No. 14–50046.,14–50046. |
| Citation | 801 F.3d 530 |
| Parties | In the Matter of AGE REFINING, INCORPORATED, Debtor The Official Committee of Unsecured Creditors, Appellant v. Eric J. Moeller, Chapter 11 Trustee for Age Refining, Incorporated, Appellee In the Matter of Age Refining, Incorporated, Debtor The Official Committee of Unsecured Creditors, Appellant v. Chase Capital Corporation; Liquidating Trustee Randolph N. Osherow, Appellees In the Matter of Age Refining, Incorporated, Debtor The Official Committee of Unsecured Creditors, Appellant v. Randolph N. Osherow, Chapter 11 Trustee, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Michael Gene Colvard, Esq. (argued), Martin & Drought, P.C., San Antonio, TX, for Appellant.
Toby L. Gerber, Esq. (argued), Norton Rose Fulbright US, L.L.P., Dallas, TX, Steve Arthur Peirce, Norton Rose Fulbright US, L.L.P., San Antonio, TX, for Appellee Chase Capital Corporation.
David S. Gragg, Steven Richards Brook, Natalie Friend Wilson, Esq., Attorney (argued), Langley & Banack, Incorporated, San Antonio, TX, for Appellee Liquidating Trustee Randolph N. Osherow.
Appeal from the United States District Court for the Western District of Texas.
Before JOLLY, HIGGINBOTHAM, and OWEN, Circuit Judges.
The Official Committee of Unsecured Creditors (the “Committee”) appeals a consolidated district court judgment affirming several bankruptcy court judgments. The bankruptcy court approved a Rule 9019 settlement, denied a motion to value a secured claim, denied an objection to an allowed claim, and approved a Chapter 11 cramdown plan. We affirm.
AGE Refining, Inc. (“AGE”), owned and operated a petroleum refinery in San Antonio. AGE processed crude oil into jet fuel for sale to local military bases and certain airlines, financing the purchase of its oil primarily through credit facility arrangements with J.P. Morgan Chase Bank (“JP Morgan”)1 and Appellee Chase Capital (“Chase”). Chase's position was secured by liens in certain AGE assets pursuant to a security agreement (the “Chase Security Agreement”) with first-priority liens in the AGE refinery (the “Refinery”) and some related AGE real and personal property. JP Morgan held first-priority security interests in AGE's cash, inventory, and accounts (the “Working Capital Assets”), in which Chase also held a subordinate security interest. AGE had four significant unencumbered assets: (1) approximately 14.52 acres of vacant real property adjacent to the Refinery (the “Adjacent Real Property”); (2) a tank farm in Elmendorf, Texas (the “Elmendorf Tank Farm”); (3) interests in executory contracts and unexpired leases under a storage and service agreement with the Redfish Bay terminal in San Patricio County, Texas (the “Redfish Bay Assets”); and (4) proceeds from pending avoidance claims against former AGE officers and directors (the “Gonzales Litigation”). Although Chase held no lien in the general proceeds from the Gonzales Litigation, it did assert a lien in one underlying component of the Gonzales Litigation: an AGE account receivable from one of the defendants in that case (the “ATI Receivables”), valued at about $1.7 million. Chase later agreed to release its lien in the ATI Receivables as part of AGE's settlement of the Gonzales Litigation on December 12, 2011.
AGE filed a voluntary petition commencing Chapter 11 proceedings on February 8, 2010. Chase properly filed a secured pre-petition claim against AGE of about $40.2 million; JP Morgan properly filed a secured pre-petition claim of about $35 million. Various unsecured creditors also filed claims, represented collectively by the Committee.
JP Morgan's pre-petition claim constituted unfunded letters of credit extended to AGE trade creditors to secure AGE crude supply purchases.2 The bankruptcy court authorized post-petition payment of critical vendors from other estate assets, thereby paying trade creditors during administration without requiring funding of the letters of credit comprising JP Morgan's pre-petition claim. These unfunded pre-petition letters of credit were ultimately retired or otherwise paid, satisfying JP Morgan's pre-petition claim in full.
On March 3, 2010, the bankruptcy court entered an order permitting AGE to obtain “debtor-in-possession” (“DIP”) financing through a new, post-petition credit facility arrangement with JP Morgan. The DIP Financing Facility was an agreement among AGE, JP Morgan, and Chase, and it also provided authority for AGE to use the cash collateral of JP Morgan as first-priority lienholder and Chase as second-priority under Bankruptcy Code section 363.3 JP Morgan renewed its first-priority liens in the Working Capital Assets and received new first-priority liens in AGE's unencumbered assets—the Adjacent Real Property, the Elmendorf Tank Farm, and the Redfish Bay Assets—in exchange for post-petition financing.
AGE stipulated to the validity and amount of Chase's and JP Morgan's secured pre-petition claims and, acting as debtor-in-possession, decided early in the case to sell substantially all its assets in a sale under section 363 or, alternatively, through a liquidating plan. The bankruptcy court approved the sale procedures on March 8, 2010, but AGE faced unexpected delays in restarting operations, adverse domestic economic conditions, mismanagement, and a massive explosion and fire at the Refinery on May 5, 2010 (the “Truck Rack Fire”). These difficulties forced delay in the sale process. The Truck Rack Fire gave rise to an insurance claim to which Chase's lien in the Refinery attached as to the casualty policy proceeds.
In light of these difficulties and on the joint motion of Chase, JP Morgan, and the Committee, the bankruptcy court appointed Eric Moeller (the “Trustee”) to serve as Chapter 11 Trustee for AGE, effective July 6, 2010.
By April 2011, the Trustee had renewed sale efforts and chose NuStar Energy (“NuStar”) as designated purchaser for the Refinery (including the Working Capital Assets), the Adjacent Real Property, and the Elmendorf Tank Farm. The sale to NuStar did not include the Redfish Bay Assets. The bankruptcy court approved the sale to NuStar for a base purchase price of $41 million, $2.2 million for platinum on hand,4 and a “net working capital adjustment.” This Working Capital Adjustment was a post-closing finalization of the value of the Working Capital Assets. It appears from the record that because the relevant parties could only estimate the value of the Working Capital Assets at the close of the sale to NuStar, the ultimate purchase price could have been either greater or less than the $41 million base price. By its terms, the Refinery Sale Order directed that NuStar place about $8 million in escrow and transfer about $37 million to the Trustee at closing. Of that $37 million, after subtracting expenses, the Refinery Sale Order directed that the Trustee transfer $36 million to Chase, in partial payment of its pre-petition claim, and $118,915 to JP Morgan, in partial payment of the DIP Financing Facility balance. The sale to NuStar closed on April 19, 2011.
On April 28, 2011, pursuant to the Refinery Sale Order, the Trustee and NuStar jointly prepared an estimated valuation of the Working Capital Assets, permitting the release of about $5 million from escrow to the Trustee, leaving $3 million in escrow, subject to finalization of the Working Capital Adjustment.
Following the sale to NuStar and the subsequent release of part of the escrowed funds, the Trustee held $12,653,111 in cash. On May 6, 2011, the Trustee transferred $7 million to JP Morgan, reducing the outstanding balance of the DIP Financing Facility to about $5 million and leaving the Trustee with a cash balance of about $5.6 million. The partial payment to Chase had reduced the outstanding balance of Chase's pre-petition claim to about $4.2 million.
Meanwhile, the Trustee sought permission to sell the Redfish Bay Assets separately. On May 20, 2011, the bankruptcy court authorized the sale of the Redfish Bay Assets to TexStar MidStream Services for $6.5 million. The Redfish Bay Sale Order directed the Trustee upon closing to reduce or eliminate the remaining DIP Financing Facility balance from sale proceeds.5 The Redfish Bay sale closed on May 20, 2011, and the Trustee as directed paid the DIP Financing Facility virtually in full, leaving the remainder of the sale proceeds to the AGE estate.6
Three weeks later, on June 10, 2011, the Trustee and NuStar finalized the Working Capital Adjustment, agreeing to value the Working Capital Assets at about $4.8 million. The $3 million remaining in escrow was released to the Trustee and NuStar transferred an additional $2.8 million to the Trustee. All told, the Trustee received a final purchase price of about $48 million in the sale to NuStar: the $41 million base price (for the Refinery, the Adjacent Real Property, and the Elmendorf Tank Farm, collectively), plus $2.2 million (for the platinum on hand), plus $4.8 million (for the Working Capital Assets).7
The Trustee did not allocate the $41 million base price among the various underlying collateral (the Refinery, the Adjacent Real Property, and the Elmendorf Tank Farm). Although the parties stipulated to a fair market value of the Adjacent Real Property of about $1.9 million, the parties dispute what portion of the remaining $39.1 million represents proceeds from sale of the Refinery (encumbered by Chase's lien) versus the Elmendorf Tank Farm (unencumbered by Chase). The Committee argues on appeal that the Elmendorf Tank Farm represents between $1.3 million and $4 million of the base price and, therefore, that the proceeds from the sale of the Refinery total $35.4 to $38.1 million.8
On August 2, 2011, Chase filed a post-petition claim for payment of principal, interest, and other charges pursuant to section 506(b).9 Chase...
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