Stephenson v. Gulfport Energy Corp. (In re Mule SKY), 20-35561 DRJ

• Decision Date: 27 September 2021
• Docket Number: 20-35561 DRJ,Adversary 21-01047-SAH
• Parties: In re: MULE SKY LLC, et al., Reorganized Debtors. v. GULFPORT ENERGY CORPORATION, a Delaware business corporation; GULFPORT MIDCON, LLC, a Delaware limited liability company; SCOOP ACQUISITION COMPANY, LLC, a Delaware limited liability company; and CONTINENTAL RESOURCES, INC., an Oklahoma business corporation, Defendants. ROBERT T. STEPHENSON AND SANDRA J. BASS, as the Successor Co-Trustees of the Robert J. Stephenson Living Trust, dated January 28, 2004, an express trust; and NORMA E. STEPHENSON, Trustee of the Norma Stephen Living Trust, dated July 29, 1991, an express trust, Plaintiffs,
• Court: U.S. Bankruptcy Court — Western District of Oklahoma

In re: MULE SKY LLC, et al., Reorganized Debtors.

ROBERT T. STEPHENSON AND SANDRA J. BASS, as the Successor Co-Trustees of the Robert J. Stephenson Living Trust, dated January 28, 2004, an express trust; and NORMA E. STEPHENSON, Trustee of the Norma Stephen Living Trust, dated July 29, 1991, an express trust, Plaintiffs, v. GULFPORT ENERGY CORPORATION, a Delaware business corporation; GULFPORT MIDCON, LLC, a Delaware limited liability company; SCOOP ACQUISITION COMPANY, LLC, a Delaware limited liability company; and CONTINENTAL RESOURCES, INC., an Oklahoma business corporation, Defendants.

No. 20-35561 DRJ

Adversary No. 21-01047-SAH

United States Bankruptcy Court, W.D. Oklahoma

September 27, 2021

(Formerly Jointly Administered under Lead Case Gulfport Energy Corporation, 20-35562)

REPORT AND RECOMMENDATION REGARDING PLAINTIFFS' AND GULFPORT DEFENDANTS' JOINT MOTION TO WITHDRAW REFERENCE

Sarah A Hall United States Bankruptcy Judge.

Before the Court is Plaintiffs' and Gulfport Defendants' Joint Motion to Withdraw the Reference [Doc. 24], filed on September 2, 2021 (the "Motion"), by defendants Gulfport Energy Corporation and Gulfport MidCon L.L.C. (f/k/a SCOOP Acquisition Company, LLC) (collectively, "Gulfport Defendants") and plaintiffs Robert T. Stephenson and Sandra J. Bass, Successor Co-trustees of the Robert L Stephenson Living Trust dated January 28, 2004, an express trust and Norma E. Stephenson, Trustee of the Norma E Stephenson Living Trust dated July 29, 1991, an express trust (collectively, "Plaintiffs"). In the Motion Gulfport Defendants and Plaintiffs jointly seek withdrawal of the reference of this adversary proceeding (the "Adversary Proceeding") from this Court to the United States District Court for the Western District of Oklahoma (the "Western District Court"). Pursuant to LCvR 81.4(b)(5), the following constitutes this Court's written recommendation on the Motion.^[1]

Facts^[2]

1. Plaintiffs brought suit against Gulfport Defendants and others on November 12, 2020, in the District Court of Grady County, State of Oklahoma (the "Grady County District Court"), Case No. CV-2020-134 (the "State Court Action").

2. In the State Court Action, Plaintiffs sought various forms of relief, including the following:

[C]laims for relief in quiet title, declaratory judgment violation of the Oklahoma Production Revenue Standards Act at 52, §§ 570.1-570.15, breach of contract, and specific performance regarding overriding royalty interests ("ORRI"), carried oil and gas leasehold working interests ("CWI"), and subsequently acquired interests ("SAI") covering all or portions of seventeen governmental sections, all in Grady County, Oklahoma. The Plaintiffs assert as the basis for their claim that the CWI and SAI derive from a certain letter agreement, dated April 27, 1979 (the "Letter Agreement"); the Plaintiffs assert as the basis for relief for their claim that the ORRI derive from instruments and conveyances of record with the Grady County Clerk.

Motion, p. 4, ¶ 5; Notice of Removal of State Court Action [Doc. 1], filed on June 22, 2021 (the "Notice"), p. 5, ¶ 9.^[3]

3. On November 13, 2020, each of the Gulfport Defendants filed a voluntary petition under chapter 11 with the United States Bankruptcy Court for the Southern District of Texas (the "Texas Bankruptcy Court"), which bankruptcy cases are being jointly administered under Case No. 20-35561 (the "Chapter 11 Cases"). Motion, p. 4, ¶ 6.

4. Plaintiffs filed proofs of claim in the Chapter 11 Cases. Motion, p. 4, ¶ 7.^[4]

5. An order confirming Gulfport Defendants' amended chapter 11 plan (the "Plan") was entered by the Texas Bankruptcy Court on April 27, 2021. Motion, p. 5, ¶ 9. The objection of Stephenson Resources LLC to confirmation was resolved by inclusion of certain language in the confirmation order. Motion, p. 5, ¶ 8. See also Gulfport Defendants' Motion for Entry of an Order Transferring Venue to the United States Bankruptcy Court for the Southern District of Texas Combined with Notice of Opportunity for Hearing and Brief in Support [Doc. 14 - withdrawn], filed on August 5, 2021, Exhibit A (Order (i) Confirming the Amended Joint Chapter 11 Plan of Reorganization of Gulfport Energy Corporation and its Debtor Subsidiaries and (ii) Granting Related Relief entered in the Chapter 11 Cases on April 27, 2021, pp. 54-55, ¶ 67).^[5]

6. The Plan became effective on May 17, 2021, and Gulfport Defendants emerged from chapter 11. Motion, p. 5, ¶ 10. Nevertheless, the Texas Bankruptcy Court continues to oversee adversary proceedings and other matters related to the Chapter 11 Cases. Motion, pp. 5-6, ¶ 10.

7. On June 22, 2021, Gulfport Defendants filed the Notice [Doc. 1] and removed the State Court Action from Grady County District Court to this Court, thereby commencing the Adversary Proceeding. Doc. 1; Motion, p. 6, ¶ 12.

8. Gulfport Defendants and Plaintiffs agree this Adversary Proceeding should proceed in the Western District Court. Motion, p. 6, ¶ 13.

9. Resolution of this Adversary Proceeding "will determine the cure amount Gulfport Defendants must pay Plaintiffs, if any, in connection with Gulfport Defendants' assumption of the Letter Agreement" in the Chapter 11 Cases. Motion, p. 8, ¶ 16.

JURISDICTION

Subject matter jurisdiction of a bankruptcy court is determined at the time an action is commenced, and subsequent events do not affect it. Empire State Bldg. Co., L.L.C. v. New York Skyline, Inc. (In re New York Skyline, Inc.) 471 B.R. 69, 78 (Bankr. S.D. N.Y. 2012) (citing Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428 (1991)). Pursuant to 28 U.S.C. § 1334, the federal district courts have original and exclusive jurisdiction over cases under Title 11 of the United States Code (bankruptcy cases) and over all property of a bankruptcy estate. 28 U.S.C. 1334(a) and (e)(1). Such courts have original but not exclusive jurisdiction over "civil proceedings arising under [T]itle 11, or arising in or related to cases under [T]itle 11." 28 U.S.C. § 1334(b). Plaintiffs and Gulfport Defendants assert the Adversary Proceeding is only "related to" the Bankruptcy Case.

By statute, federal district courts may provide that any or all cases under Title 11 and any or all proceedings arising under Title 11, or arising in or related to a bankruptcy case, shall be referred to the bankruptcy judges for their respective districts. 28 U.S.C. § 157(a).^[6] Based on the referral, bankruptcy courts have the authority to "hear and determine" all "core proceedings arising under [T]itle 11, or arising in a case under [T]itle 11 . . . and may enter appropriate orders and judgments, subject to review under section 158 of this [T]itle." 28 U.S.C. 157(b)(1). A non-exclusive list of "core proceedings" is set forth in 28 U.S.C. § 157(b)(2) and includes "matters concerning the administration of the estate," "allowance or disallowance of claims against the estate," and "counterclaims by the estate against persons filing claims against the estate."

Non-core matters are "those that are 'not . . . core' but are 'otherwise related to a case under [T]itle 11.'" Executive Benefits Ins. Agency v. Arkison, 573 U.S. 25, 34 (2014) (citing 28 U.S.C. § 157(c)(1)). Non-core matters do not depend on the Bankruptcy Code for their existence and can proceed in another court outside of bankruptcy. Gardner v. United States (In re Gardner), 913 F.2d 1515, 1517-18 (10^th Cir. 1990) (first citing United States v. Farmers State Bank of Leed (In re Alexander), 49 B.R. 733, 736 (Bankr. D. N.D. 1985); and then citing Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5^th Cir. 1987)). A proceeding is "related to" a bankruptcy case if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Gardner, 913 F.2d at 1518. There is, however, no statutory definition for determining if a matter falls within a bankruptcy court's "related to" subject matter jurisdiction. Benedictine College, Inc. v. Century Office Products, Inc., 866 F.Supp. 1323, 1326 (D. Kan. 1994); Professional Home Health Care, Inc. v. Complete Home Health Care, Inc. (In re Professional Home Health Care, Inc.), 2002 WL 1465914, at *2 (Bankr. D. Colo. July 2, 2002).

The outer limits of a bankruptcy court's subject matter jurisdiction are those matters "related to" a case under Title 11. Bankruptcy courts are authorized to hear non-core matters related to a bankruptcy case. However,

Put simply: If a matter is core, the statute empowers the bankruptcy judge to enter final judgment on the claim, subject to appellate review by the district court. If a matter is non-core, and the parties have not consented to final adjudication by the bankruptcy court, the bankruptcy judge must propose findings of fact and conclusions of law. Then, the district court must review the proceeding de novo and enter final judgment.

Executive Benefits, 573 U.S. at 34. See also 28 U.S.C. § 157(c).

The request to withdraw the reference of the Adversary Proceeding must be analyzed against this statutory backdrop.

RECOMMENDATION 1: THE CLAIMS RAISED IN THE ADVERSARY PROCEEDING ARE NON-CORE.

Plaintiffs and Gulfport Defendants assert the Adversary Proceeding is not a core proceeding but is only "related to" the Chapter 11 Cases and, thus, non-core. This Court agrees. The State Court Action was filed before the Bankruptcy Case was commenced, and the claims set forth therein exist independent of the Bankruptcy Code. Accordingly, the State Court Action and the claims raised therein satisfy the "non-core, related to" test set forth in Gardner, 913 F.2d at 1518 (citing Nat'l Acceptance Co. of Am. v. Price (In re Colorado Energy Supply, Inc.), 728 F.2d 1283, 1286 (10^th Cir. 1984)).

When the State Court Action was removed and the...