Paragon Litig. Trust v. Noble Corp. (In re PLC)

• Decision Date: 11 March 2019
• Docket Number: Case No.: 16-10386 (CSS),Adv. Proc. No.: 17-51882(CSS)
• Citation: 598 B.R. 761
• Parties: IN RE: PARAGON OFFSHORE PLC, et al., Debtors. Paragon Litigation Trust, Plaintiff, v. Noble Corporation PLC, Noble Corporation Holdings Ltd, Noble Holding International (Luxembourg) S.A.R.I., Noble FDR Holdings Limited, Ashley Almanza, Julie H. Edwards, Gordon T. Hall, Jon A. Marshall, James A. MacLennan, Mary P. Ricciardello, Julie J. Robertson, and David Williams, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

598 B.R. 761

IN RE: PARAGON OFFSHORE PLC, et al., Debtors.Paragon Litigation Trust, Plaintiff,

v.Noble Corporation PLC, Noble Corporation Holdings Ltd, Noble Holding International (Luxembourg) S.A.R.I., Noble FDR Holdings Limited, Ashley Almanza, Julie H. Edwards, Gordon T. Hall, Jon A. Marshall, James A. MacLennan, Mary P. Ricciardello, Julie J. Robertson, and David Williams, Defendants.

Case No.: 16-10386 (CSS)

Adv. Proc. No.: 17-51882(CSS)

United States Bankruptcy Court, D. Delaware.

Signed March 11, 2019

SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP, Anthony W. Clark, Mark McDermott (Argued), One Rodney Square, P.O. Box 636, Wilmington, DE 19899-0636 -and- George A. Zimmerman, Lauren E. Aguiar, Four Times Square, New York, NY 10036-6522, -and- Wallis M. Hampton, 1000 Louisiana Street, Suite 6800, Houston, TX 77002-5026, Counsel for the Defendants.

YOUNG, CONAWAY STARGATT & TAYLOR, LLP, Pauline K. Morgan, Joel A. Waite, Jaime Luton Chapman, Michael S. Neiburg, 1000 North King Street, Wilmington, DE 19801, -and- JONES DAY, Bruce Bennett, James O. Johnston, 555 South Flower Street, 50^th Floor, Los Angeles, CA 90071, -and Gregory M. Shumaker, David S. Torborg, 51 Louisiana Avenue, N.W., Washington, DC 20001, -and- Jennifer L. Del Medico, Genna L. Ghaul, 250 Vesey Street, New York, New York 10281, KIRKLAND & ELLIS LLP, Jeffrey Zeiger, David Zott (Argued), 300 North LaSalle, Chicago, IL 60654, Counsel to Paragon Litigation. Trust

OPINION ¹

Sontchi, CJ.

INTRODUCTION

The Bankruptcy Code has its origins in the Constitution itself. Article I authorizes Congress to pass "uniform laws on the subject of bankruptcies."² As Madison observed, "[t]he power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce...that the expediency of it seems not likely to be drawn into question."³ The uniform laws of bankruptcy remain, though, subordinate to the Constitution, and in enacting such laws, Congress must abide by another of the Constitution's clear directives:

The judicial power of the United States shall be vested in one supreme court and in such inferior courts as the Congress may from time to time ordain and establish. The judges shall hold their offices during good behavior....

[...]

The judicial power shall extend to all cases, in law and equity, arising under ...the laws of the United States....⁴

Bankruptcy judges only hold office for fourteen years, no matter how good their behavior may be. And because bankruptcy judges do not have life tenure, they may not wield the judicial power of the United States.⁵ These facts necessarily limit the ability of Congress to entrust adjudicative authority to bankruptcy courts. As a result, certain claims—commonly referred to as Stern claims— "may not be adjudicated to final judgment by [a] bankruptcy court" even though the Bankruptcy Code directs otherwise.⁶ Instead, the Supreme Court instructs a bankruptcy court that is faced with a Stern claim to "hear the proceeding and submit proposed findings of fact and conclusions of law to the district court for de novo review and entry of judgment."⁷

Determining which claims may not be finally adjudicated by this Court without running afoul of Article III is no simple task. The constitutional limits that Article III places on Congress' ability to grant authority to bankruptcy judges have been described—if not completely demarcated—in a handful of important opinions. In Northern Pipeline Construction Co. v. Marathon Pipe Line Co. ,⁸ a plurality of that Court deemed the Bankruptcy Act of 1978 to have impermissibly vested "most, if not all, of the ‘essential attributes of the judicial power’ " in the bankruptcy courts.⁹ The general principle to emerge from that plurality was that "Art. III bars Congress from establishing legislative courts to exercise jurisdiction over all matters related to those arising under the bankruptcy laws."¹⁰

In response to Northern Pipeline , Congress passed the Bankruptcy Amendments and Federal Judgeship Act of 1984 (commonly referred to as "the 1984 Amendments ").¹¹ That act created the familiar statutory distinction between "core" and "non-core" matters, allowing bankruptcy courts to continue to enter final orders in "core" matters and to submit findings of fact and conclusions of law in "non-core" matters. (Bankruptcy practitioners are, undoubtedly, already aware that the 1984 Amendments were codified in part at 28 U.S.C. §§ 157 and 158.)

The Supreme Court would go on to address the Article III issues raised by the 1984 Amendments in two important opinions, issued twenty-two years apart. In 1989, with Granfinanciera, S.A. v. Nordberg ,¹² the Supreme Court—although ruling on a 7^th Amendment issue—addressed the judicial power question at some length, setting the stage for Stern v. Marshall .¹³ That 2011 opinion discussed Granfinanciera at length (and gave us " Stern claims.") After considering what Justice Scalia called a "sheer surfeit of factors,"¹⁴ Chief Justice Roberts ultimately concluded that by the 1984 Amendments Congress had exceeded its authority in "one isolated respect."¹⁵ For, while those Amendments permit the Bankruptcy Court to "enter a final judgment on [ ] state law counterclaim[s] that [are] not resolved in the process of ruling on a creditor's proof of claim," Article III of the Constitution does not.¹⁶

* * *

Granfinanciera and Stern are, of course, binding on this Court, but determining the exact scope and proper application of those opinions is not easy work. In his Northern Pipeline concurrence, then-Justice Rehnquist observed that "[t]he cases dealing with the authority of Congress to create courts other than by use of its power under Art. III do not admit of easy synthesis."¹⁷ That observation rings true today. As aptly summarized by Hart & Weschler's, "[f]ew observers would view the Supreme Court's shifting decisions in this area as having provided a coherent approach to the general question of the constitutionality of non-Article III adjudication."¹⁸ Nevertheless, this Court must approach this issue, while taking into account both the dictates of Congress and the guidance provided by the Supreme Court: Are bankruptcy courts in violation of Article III of the United States Constitution when they enter final judgment on core fraudulent transfer claims brought against non-claimant defendants? The best answer that this Court can provide to that question is "no." Bankruptcy courts, having been granted the authority to do so by Congress, may enter final judgments in all core fraudulent transfer claims.

JURISDICTIONAL STATEMENT

This Court has jurisdiction to consider this motion under 28 U.S.C. §§ 157 and 1334. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409.

PROCEDURAL HISTORY

A. The Original Bankruptcy

On February 14, 2016, Paragon Offshore plc and certain of its affiliates (hereinafter "Debtors " or "Paragon ") filed voluntary petitions under chapter 11 of the Bankruptcy Code.¹⁹ On April 19, 2016, Debtors filed their second plan (the "Failed Plan ").²⁰ Debtors subsequently filed a number of modifications, amendments, and supplements to the Failed Plan. One such plan supplement, filed on May 20, 2016, included a settlement agreement between Noble Corporation plc ("Noble ")—a defendant in this action—and Paragon Offshore plc (the "Settlement Agreement ").²¹

The Settlement Agreement provided for broad releases in favor of Noble and affiliated parties. Provided that certain conditions were met, Paragon agreed to provide "releases in favor of the Noble Releasees" which were defined as "Noble and each of its Affiliates" as well as their "respective current and former principals, officers, directors, managers, general partners, employees, agents, parent companies, subsidiaries, affiliates, attorneys, accountants, predecessors, successors, assigns, heirs, administrators, executors, supervisors, and representatives of any kind and nature." These releases were to effectuate the release of the "Noble Releasees" from a wide variety of potential claims, including claims that "Paragon or any of its Affiliates has or might claim...in any way arising out of, relating to, or in connection with any matter relating to the Spin-Off" including "any fraudulent transfer or similar claims arising under section 548 of the Bankruptcy Code or any similar state or foreign statute."²² The Settlement Agreement included language that would prevent these releases from taking effect unless certain conditions were either met or waived.²³

Ultimately, on November 15, 2016, this Court denied confirmation of the Failed Plan, finding that it was not feasible.²⁴ On May 2, 2017, a fifth plan was filed by the Debtor, which did not incorporate the Settlement Agreement,²⁵ and after some modification, on June 7, 2017, that plan was confirmed ("the Confirmed Plan ").²⁶ The Confirmed Plan created a successor to the Debtor, the Paragon Litigation Trust ("Plaintiffs ," "the Paragon Litigation Trust ," or "Respondent "), and distributed interests in that trust to creditors. Pursuant to the Confirmed Plan, the right to pursue certain claims, including fraudulent transfer claims, was transferred from the Debtors to the Paragon Litigation Trust. Noble provided input into the formation of that plan, but the record does not reflect that they objected at any point to that plan's inclusion of language granting this Court exclusive jurisdiction to "adjudicate" claims by the Trust "to the fullest extent permitted by law."

B. The Adversary Proceeding and the Motion to Determine

This adversary proceeding was initiated by the Paragon Litigation Trust, which filed a complaint in this Court on December 15, 2017 ("the Complaint "). The Complaint names a number of Defendants ("Defendants " or "Movant "), including Noble Corporation plc, the counterparty to the Settlement Agreement.

On September 20, 2018, the Defendants filed the instant motion and a related memorandum of law (collectively, the "Motion to...