Panda Energy International Inc.
| Decision Date | 14 February 2011 |
| Docket Number | Case No. 09-30453 (SGJ),Adversary No. 10-03341,Civil Action No. 3:10-CV-2541-K,Civil Action No. 3:11-CV-003-K |
| Parties | PANDA ENERGY INTERNATIONAL, INC., Appellant, v. FACTORY MUTUAL INSURANCE, MARSH USA, INC., and JOHN SAMUELS, Appellees. In re HEREFORD BIOFUELS, L.P., et al., Debtors. FACTORY MUTUAL INSURANCE COMPANY, Plaintiff, v. PANDA ENERGY INTERNATIONAL, INC., Defendant. |
| Court | U.S. District Court — Northern District of Texas |
Bankruptcy Appeal
Before the Court is Appellant Panda Energy International, Inc.'s ("Panda Energy") Motion for Leave to Appeal (Doc. No. 2 in 3:11-CV-003-K) and Motion to Withdraw the Reference (Doc. No. 2 in 3:10-CV-2541-K). Panda Energy contends that: (1) the bankruptcy court wrongfully struck its request for a jury trial in an adversary proceeding connected to the bankruptcy case and (2) this Court should withdraw the reference to bankruptcy court because Factory Mutual Insurance Company's ("Factory Mutual") adversary proceeding complaint is barred by res judicata and is an impermissible collateral attack on this Court's remand order issued November 16, 2010. Because this Court finds that this issue does not meet the standard for an interlocutory appeal and that withdrawal of the reference to bankruptcy court is not warranted, both motions are DENIED. The Clerk is hereby ORDERED to file this Memorandum Opinion and Order in both 3:10-CV-2541-K and 3:11-CV-003-K and to close both cases.
It appears the basis for the disagreement between these parties stems from two events: (1) the circumstances surrounding the signing of an insurance policy for the construction of an ethanol fuel plant in Hereford, Texas and (2) an asset sale conducted by the Northern District of Texas bankruptcy court in which all potential claims related to that insurance policy were sold. To date, multiple proceedings have been unable to resolve this dispute: (1) two Texas state court lawsuits were filed, both removed to federal court, and both remanded to state court; (2) two declaratory judgment adversary proceedings in a federal bankruptcy case; (3) a separate federal court lawsuit to halt oneof the bankruptcy proceedings; and (4) an interlocutory appeal to the federal district court on an order during the same bankruptcy proceeding.
Panda Energy is an energy company based in Dallas, Texas. It was approached, and eventually contracted with, a German company to build the ethanol plant described above in 2005. Hereford Biofuels, L.P. ("Hereford Biofuels") was an entity formed to take on investments in the project from Panda Energy and other companies and assume the risk of building the plant. Hereford Biofuels, the project-specific entity, was the sole named insured on a builder's risk insurance policy for the project issued by Factory Mutual in 2006. During the construction of the ethanol plant in 2008, work was delayed by damage incurred to the plant's foundation during testing and due to an outbreak of Q-fever among the construction workers, an infection spread by contact with livestock. Hereford Biofuels made claims on its builder's risk policy with Factory Mutual for both incidents. Factory Mutual determined that the insurance policy did not encompass Hereford Biofuels' claims and denied coverage.
In addition to the denial of insurance coverage, Panda Energy claims it was defrauded by the German corporation that set up the ethanol plant deal and the German corporation's U.S. representative. Hereford Biofuels, Panda Energy, and two other companies filed suit against Factory Mutual and other defendants in Texas state court in Deaf Smith County on October 22, 2008 ("the Amarillo litigation"). The plaintiffs in that lawsuit asserted claims against Factory Mutual for, among other things, breachof contract and violations of the Texas Insurance Code. The plaintiffs also asserted claims against several other defendants, including the German corporation that had originally approached Panda Energy about the ethanol plant project. Hereford Biofuels was unable to stay afloat, and filed for bankruptcy protection in the Northern District of Texas on January 23, 2009. The automatic stay from Chapter 3 of the Bankruptcy Code halted the Amarillo litigation, which had since been removed to federal court.
A sale of Hereford Biofuels' assets was quickly organized by the bankruptcy court, which issued an order on March 12, 2009 establishing procedures and scheduling an auction. On April 22, 2009, Hereford Biofuels' assets were sold at auction, including Hereford Biofuels' rights in the Amarillo litigation. Factory Mutual and the other defendants in the Amarillo litigation, the only bidders at the asset sale for the litigation rights, purchased Hereford Biofuels' rights for $1.5 million. Panda Energy was represented at the auction but did not submit a bid. This sale was confirmed by the bankruptcy court two days later on April 24, 2009.
Following the sale on April 27, 2009, Panda Energy represented to Factory Mutual that Panda Energy did not consider the asset sale the end of the Amarillo litigation. On May 8, 2009, Factory Mutual filed a declaratory judgment action in the bankruptcy court as an adversary proceeding, asking the court to declare that the purchase of rights in the Amarillo litigation was lawful and that the sale conveyed all rights in the Amarillo litigation. In an order issued August 6, 2009, the bankruptcycourt found, among other things, that (1) the purchase of the rights in the Amarillo litigation was lawful and (2) that all claims against Factory Mutual in the Amarillo litigation were property of Hereford Biofuels' bankruptcy estate and were acquired by Factory Mutual and the other defendants during the auction. Panda Energy amended its complaint in the Amarillo litigation the same day, dismissing all claims against Factory Mutual. Panda Energy continued to pursue the Amarillo litigation against the German company for fraud, and the case was remanded to state court.
Panda Energy filed another lawsuit against Factory Mutual and other defendants in Texas state court, Dallas County, on April 20, 2010 ("Dallas County litigation"). Panda Energy again asserted claims for breach of contract and violations of the Texas Insurance Code arising out of the builder's risk insurance policy issued in connection with the ethanol plant project in Hereford, Texas. Factory Mutual removed to this Court on August 18, 2010 based on diversity. This Court remanded the Dallas County litigation on November 16, 2010 for lack of diversity, rejecting Factory Mutual's argument that a non-diverse defendant was improperly joined to defeat diversity jurisdiction.
Prior to this Court's remand order, Factory Mutual filed a second declaratory judgment claim as an adversary proceeding in the Hereford Biofuels bankruptcy case. In the adversary proceeding, Factory Mutual sought a declaration that the Dallas County litigation arose out of the same transaction as the claims asserted in the Amarillolitigation and that Panda Energy's claims were barred by estoppel, waiver, and res judicata from the first declaratory judgment action in 2009. Since November 16, 2010, when this Court remanded the Dallas County litigation, the bankruptcy court has struck Panda Energy's jury demand and severed Panda Energy's counterclaims in the declaratory judgment adversary proceeding.
The current position of the parties' appears to be as follows: Panda Energy believes that it has claims against Factory Mutual that exist separate and apart from the claims previously possessed by the debtor Hereford Biofuels and purchased at auction by Factory Mutual in April 2009. Panda Energy also believes it is not foreclosed from pursuing those claims by any order of the bankruptcy court or by actions taken by Panda Energy in the bankruptcy court. Factory Mutual believes that Panda Energy never had any claims against Factory Mutual arising out of the insurance policy on the ethanol plant project because it was not a named insured on the policy and, even if it did, Panda Energy waived and/or released those claims in the first declaratory judgment action decided by the bankruptcy court in August 2009.
Panda Energy argues in its motion for leave to file an interlocutory appeal that the bankruptcy court's denial of Panda Energy's jury demand is erroneous and qualifies for interlocutory appeal because it involves a controlling question of law, there is substantial ground for difference of opinion, and an immediate appeal would advance the litigation. Panda Energy also requests that this Court withdraw the automatic reference tobankruptcy for adversary proceeding 10-03341-sgj, Factory Mutual's second declaratory judgment action, because Panda Energy argues this Court's remand order has essentially deprived the bankruptcy court of the power to act.
Interlocutory appeals in a bankruptcy case are authorized under 28 U.S.C. § 158(a)(3). The Fifth Circuit has applied the review process in 28 U.S.C. § 1292(b), interlocutory appeal from the district court to the circuit appeals court, when deciding issues related to interlocutory appeal from the bankruptcy court to the district court. Ichinose v. Homer Nat'l Bank, 946 F.2d 1169, 1177 (5th Cir. 1991). The decision to grant such an appeal is firmly within the district court's discretion. Ryan v. Flowserve Corp., 444 F. Supp. 2d 718, 722 (N.D. Tex. 2006) (citing Cheney v. United States District Court for the District of Columbia, 542 U.S. 367, 405 n. 9 (Ginsburg, J., dissenting)).
The district court may withdraw, in whole or in part, on its own motion or on motion of any party, any case or proceeding referred to the bankruptcy court for cause shown. 28 U.S.C. § 157(d) (2010). The decision to withdraw a matter from bankruptcy court is committed to the discretion of the...
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