Tow v. Bulmahn
| Decision Date | 29 April 2016 |
| Docket Number | CIVIL ACTION NO: 15-3141 SECTION: R |
| Parties | RODNEY TOW, TRUSTEE v. T. PAUL BULMAHN, ET AL. |
| Court | U.S. District Court — Eastern District of Louisiana |
Rodney Tow, the Chapter 7 bankruptcy trustee for ATP Oil and Gas Corporation, sues defendants--former officers and directors of ATP--for breaches of fiduciary duty, fraudulent transfer, civil conspiracy, and aiding and abetting breaches of fiduciary duty. The Officer Defendants and Director Defendants each move to dismiss the Trustee's complaint for failure to state a claim.1 For the following reasons, the Court grants both motions.
Rodney Tow is the Chapter 7 Trustee for ATP Oil and Gas Corporation. ATP was incorporated under Texas law in 1991. Before filing for bankruptcy in August 2012, ATP engaged in the acquisition, development, and production of oil and natural gas properties in the Gulf of Mexico and other locations.2
The Trustee sued eighteen defendants, most of whom are former officers or directors of ATP. The "Director Defendants" are Burt A. Adams, Arthur H. Dilly, Brent M.Longnecker, Robert J. Karow, Gerard J. Swonke, Chris A. Brisack, George R. Edwards, and Walter Wendlandt. Six Director Defendants--Dilly, Edwards, Karow, Longnecker, Swonke, and Wendlandt--served on the Audit Committee for ATP's Board of Directors.3 Three Director Defendants--Adams, Brisack, and Wendlandt--served on the Compensation Committee.4 The "Officer Defendants" are:
The final defendant is John Tschirhart, former General Counsel of ATP.5 In Count Four of the Second Amended Complaint--erroneously labeled "Cause of Action Five"--theTrustee alleges legal malpractice against Tschirhart.6 The Trustee has since dismissed all claims against Tschirhart with prejudice.7
On May 20, 2010, the Deepwater Horizon drilling rig exploded and sank in the Gulf of Mexico, creating "one of the most pervasive and devastating environmental disasters in the history of the United States."8 In response, the federal government issued moratoria on new and existing deepwater drilling in the Gulf of Mexico.9 Although the moratoria were eventually lifted, the Government instituted new rules and regulations that delayed the resumption of drilling and increased the cost of decommissioning deepwater wells.10 The Trustee alleges these developments deferred or eliminated many of ATP's streams of revenue and increased its costs of operation.11 As a result, ATP experienced immediate difficulties servicing its debt and paying expenses.12 The Trustee alleges that "as early as May 2010, ATP began to have problems with liquidity . . . and entered the zone of insolvency."13
Following the BP Oil Spill, ATP invested substantial sums in several capital projects. The first involved ATP's Cheviot Field in the North Sea. In late 2008, ATP contracted for the construction of a floating production platform, the "Octabuoy," which was to be deployed at the Cheviot Field upon completion in 2014.14 The Trustee alleges that although initial estimates indicated that the Cheviot Field contained $702.5 million in proven undeveloped reserves and $1,120.1 million in probable undeveloped reserves, these estimates were decreased between January 1 and June 30, 2012.15 The new figures suggested that the field contained only $25.5 million in proven undeveloped reserves and $538.8 million in probable undeveloped reserves.16 Nonetheless, the Trustee alleges, sometime in 2012 ATP provided $80 million in funding to an ATP subsidiary in connection with the Cheviot Field project.17
The second project involved ATP's efforts to obtain drilling licenses in the Eastern Mediterranean Sea for two ATP subsidiaries.18 According to the Trustee, in or around June 2011, ATP provided funding for ATP East Med Number 1 B.V. ("ATP-EM-1") to purchase a share of three licenses off the coast of Israel.19 The Trustee alleges that "it was estimated that ATP would need to spend $250 million on those licenses before production."20 Hefurther alleges that although ATP-EM-1 successfully acquired a share of all three licenses, the Israeli government seized ATP's interest in two of the licenses because "it was discovered that they were held in violation of Israeli law."21 As to the second ATP subsidiary, ATP East Med Number 2 B.V. ("ATP-EM-2"), the Trustee alleges that ATP funded the subsidiary's bids on unspecified "work" in the Eastern Mediterranean.22 He further contends that although "millions of dollars were spent," ATP-EM-2 was unable to obtain any drilling licenses.23 The final investment involved a project named "Clipper."24 The Trustee alleges that although ATP initially stated that Clipper would cost $120 million to complete, the cost "ballooned mere months later to over $200 million."25 The Trustee gives no additional details on Clipper.
Ultimately, ATP proved unable to survive the disruptions caused by the BP Oil Spill and drilling moratoria. Part of the Government's response to the oil spill was to promulgate new regulations on the decommissioning of deepwater wells.26 As a result of these regulations, ATP incurred decommissioning costs earlier than the company originally anticipated.27 The Trustee alleges that because ATP was unable to pay these costs, thecompany incurred $120 million in liability to the Bureau of Ocean Energy Management (BOEM).28 Eventually, BOEM stripped ATP of its ability to operate in the Gulf of Mexico.29
At some point before it declared bankruptcy, ATP began selling investors net profits increases ("NPIs") and overriding royalty interests ("ORRIs") to generate cash to pay "past due obligations."30 The Trustee alleges that although these transactions generated large amounts of cash for ATP--approximately $600 million--they "crippl[ed]" the company's ability to profit from its in-ground hydrocarbon assets in the future.31 According to the Trustee, ATP's reserves became so encumbered that when the company filed for bankruptcy they could be sold only for de minimis value.32
While ATP struggled with drilling moratoria, new regulatory requirements, and decreasing liquidity, the company entered unfavorable vendor contracts that further impeded its ability to remain a going concern. Several contracts involved Bluewater Industries ("BWI"), which ATP retained to perform various services.33 According to the Trustee, the contracts between ATP and BWI were "completely one-sided in BWI's favor."34 Allegedly, the BWI contracts required ATP to bear costs resulting from overruns and delaysattributable to BWI, which caused ATP to incur costs with little countervailing benefit.35 The other unfavorable contract involved Nabors Offshore Corporation, which leased a drilling rig to ATP from March 2010 through July 2012 at a rate of $100,000 per day.36 The Trustee contends that ATP used the drilling rig not for drilling but for services that could have been performed through less expensive means.37 The Trustee's theory is that although ATP's arrangements with BWI and Nabors were unfavorable, "these contracts were entered into at the direction of Defendant Bulmahn to benefit his friends."38
According to the Trustee, "exorbitant" bonuses paid to certain Officer Defendants further impeded ATP's survival.39 The Trustee contends that defendants Bulmahn, Tate, Morris, Reese, and Godwin obtained a total of over $9 million in cash and $3.5 million in stock bonuses during the years 2010 and 2011.40 During this time period, ATP was allegedly "in the zone of insolvency and [] desperate for cash to fund its operations."41
By the summer of 2012, ATP was considering bankruptcy.42 Before the company filed for bankruptcy protection, however, ATP's Board of Directors approved payment ofa special dividend for holders of Series B stock.43 The dividend, which was announced on or about July 2, 2012, amounted to $1.99 per Series B share and resulted in a total payment of $7 million.44 According to the Trustee, "ATP was advised by its attorneys" that the dividend would be improper under the federal Bankruptcy Code and Texas law.45 The Trustee contends that ATP nonetheless paid the dividend because CEO Bulmahn "demand[ed]" payment "to benefit preferred investors" of ATP.46
On August 17, 2012, ATP filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Southern District of Texas.47 ATP's case was converted to a Chapter 7 proceeding on June 26, 2014, and Tow was appointed Trustee for ATP's estate.48
The Trustee filed suit on behalf of ATP's estate against ATP's officers and directors in the Southern District of Texas. Initially, the case was assigned to the Bankruptcy Court for the Southern District of Texas. On June 29, 2015, Judge Gray Miller withdrew the bankruptcy reference and transferred the case to the District Court for the Southern Districtof Texas.49 Defendants then moved to transfer the case under the first-to-file rule, arguing that the Trustee's complaint substantially overlapped with securities class actions that were being litigated before this Court.50 Judge Miller granted the motion on July 28, 2015 and transferred the Trustee's lawsuit to this Court.51
On July 27, 2015, the Trustee filed a four-count First Amended Complaint, alleging breach of fiduciary duty, fraudulent transfer, and civil conspiracy on the part of the Director Defendants and Officer Defendants, as well as legal malpractice on the part of ATP's...
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