TransAmerican Natural Gas Corp., Matter of

• Decision Date: 25 November 1992
• Docket Number: Nos. 91-2550,91-2716,s. 91-2550
• Citation: 978 F.2d 1409
• Parties: 28 Collier Bankr.Cas.2d 115, 24 Fed.R.Serv.3d 447, Bankr. L. Rep. P 75,046 In the Matter of TRANSAMERICAN NATURAL GAS CORP., Debtor. TOMA STEEL SUPPLY, INC., Appellant, v. TRANSAMERICAN NATURAL GAS CORPORATION, et al., Appellees. In the Matter of TRANSAMERICAN NATURAL GAS CORP., Debtor. TOMA STEEL SUPPLY, INC., Appellant, v. GHR ENERGY CORP., Appellee. In the Matter of TRANSAMERICAN NATURAL GAS CORPORATION, Debtor. TOMA STEEL SUPPLY, INC., Appellee, v. TRANSAMERICAN NATURAL GAS CORPORATION, f/k/a GHR Energy Corporation, Appellant. to 91-2718 and 91-2915.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1409

978 F.2d 1409

28 Collier Bankr.Cas.2d 115, 24 Fed.R.Serv.3d 447,

Bankr. L. Rep. P 75,046

In the Matter of TRANSAMERICAN NATURAL GAS CORP., Debtor.

TOMA STEEL SUPPLY, INC., Appellant, v. TRANSAMERICAN NATURAL GAS CORPORATION, et al., Appellees.

In the Matter of TRANSAMERICAN NATURAL GAS CORP., Debtor.

TOMA STEEL SUPPLY, INC., Appellant, v. GHR ENERGY CORP., Appellee.

In the Matter of TRANSAMERICAN NATURAL GAS CORPORATION, Debtor.

TOMA STEEL SUPPLY, INC., Appellee, v. TRANSAMERICAN NATURAL GAS CORPORATION, f/k/a GHR Energy

Corporation, Appellant.

Nos. 91-2550, 91-2716 to 91-2718 and 91-2915.

United States Court of Appeals Fifth Circuit.

Nov. 25, 1992.

Rehearing and Rehearing En Banc

Denied Jan. 22, 1993.

Jonathan C.S. Cox, Vicki M. Buchanan, Theresa M. Moore, Cox, Buchanan & Padmore, Denver, Colo., for Toma Steel Supply, Inc. in No. 91-2550.

Karen M. Zuckerman, John C. Nabors, Liddell, Sapp, Zivley, Hill & LaBoon, Houston, Tex., for TransAmerican Natural Gas Corp. in No. 91-2550.

Jonathan C.S. Cox, Vicki M. Buchanan, Theresa M. Moore, Cox, Buchanan & Padmore, Denver, Colo., Mark C. Guthrie, Winstead, Sechrest & Minick, Houston, Tex., for Toma Steel Supply, Inc. in No. 91-2716.

Karen M. Zuckerman, Kathleen W. Osman, Robert J. King, Liddell, Sapp, Zivley, Hill & LaBoon, Houston, Tex., for TransAmerican Natural Gas Corp. in No. 91-2716.

Mark C. Guthrie, Donald F. Hawbaker, Wesley W. Steen, Winstead, Sechrest & Minick, Houston, Tex., Jonathan C.S. Cox, Vicki M. Buchanan, Theresa M. Moore, Cox, Buchanan & Padmore, Denver, Colo., for Toma Steel Supply, Inc. in No. 91-2717.

Karen M. Zuckerman, John C. Nabors, Kathleen W. Osman, Liddell, Sapp, Zivley, Hill & LaBoon, Houston, Tex., for TransAmerican Natural Gas Corp. in No. 91-2717.

Mark C. Guthrie, Wesley W. Steen, Winstead, Sechrest & Minick, Houston, Tex., Jonathan C.S. Cox, Vicki M. Buchanan, Theresa M. Moore, Cox, Buchanan & Padmore, Denver, Colo., for Toma Steel Supply Inc. in No. 91-2718.

Karen M. Zuckerman, John C. Nabors, Liddell & Sapp, Zivley, Hill & LaBoon, Houston, Tex., for TransAmerican Natural Gas Corp. in No. 91-2718.

Karen M. Zuckerman, Kathleen W. Osman, Liddell, Sapp, Zivley, Hill & LaBoon, Houston, Tex., for TransAmerican Natural Gas Corp. in No. 91-2915.

Mark C. Guthrie, Winstead, Sechrest & Minick, Houston, Tex., Jonathan C.S. Cox, Vicki M. Buchanan, Theresa M. Moore, Cox, Buchanan & Padmore, Denver, Colo., Michael C. Feehan, Dunn, Kacal Adams, Pappas & Law, Houston, Tex., for Toma Steel Supply, Inc. in No. 91-2915.

Appeals from the United States District Court for the Southern District of Texas.

Before REAVLEY, JOLLY, and HIGGINBOTHAM, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

These over-litigated consolidated appeals, which have been characterized by unnecessary contentiousness since their inception in the bankruptcy court in 1987, arise out of Toma's sale of well casing, post-petition, to TransAmerican, a Chapter 11 debtor-in-possession. TransAmerican objected to Toma's administrative expense claim, alleging that the bankruptcy estate received no benefit, because some of the casing was defective and caused damages in excess of the amount of Toma's claim. In 1987, the bankruptcy court allowed Toma's claim in its entirety and ordered immediate payment. In 1989, the district court vacated the bankruptcy court's orders, and remanded the case for findings of fact and conclusions of law on TransAmerican's objection. On remand, the bankruptcy court denied Toma's claim, and the district court affirmed. We hold that Toma satisfied its burden of proving that the casing benefited the estate, and that the bankruptcy court adequately considered TransAmerican's objection when it initially allowed Toma's claim. We therefore REVERSE the judgment of the district court, and REMAND the case for further proceedings consistent with this opinion.

I

A brief summary of the lengthy procedural history of these appeals is in order. TransAmerican filed a voluntary bankruptcy petition under Chapter 11 in 1983. In 1985, during the pendency of TransAmerican's reorganization proceedings, Toma and TransAmerican entered into a contract pursuant to which Toma sold well casing to TransAmerican. In August or September of 1986, TransAmerican stopped paying Toma's invoices. Nevertheless, over the next several months, Toma continued to supply casing to TransAmerican, until the balance due was $2,288,683.45 (nearly Toma's entire net worth).

In the fall of 1986, TransAmerican experienced five successive well failures. Four of the wells contained casing supplied by Toma; the fifth contained casing supplied by another distributor. After these failures, casing supplied by Toma was retrieved from another well that had not been completed.

In February 1987, Toma filed in the bankruptcy court emergency motions for allowance of administrative expenses of approximately $2.3 million for casing supplied to TransAmerican pursuant to the contract. TransAmerican opposed the motion.

On March 11, 1987, the bankruptcy court conducted an evidentiary hearing on Toma's administrative expense claim. TransAmerican asserted that Toma had provided no benefit to the estate, because some of the casing supplied by Toma was defective, causing well failures and damages exceeding the balance TransAmerican owed Toma. Although the bankruptcy court stated that the hearing was limited to determining administrative expense priority, and not to whether Toma had supplied defective casing, both parties introduced evidence relevant to TransAmerican's objection. At the conclusion of the hearing, the bankruptcy court found that Toma had satisfied its burden of proving that the expenses were reasonable and necessary for the preservation of the estate. It allowed Toma's administrative expense claim in full, and directed TransAmerican to pursue its claims for defective casing in another court of competent jurisdiction within 60 days.

Toma then filed amended and supplemental motions regarding the emergency nature of its need for immediate payment. It emphasized the availability of insurance sufficient to satisfy any damages TransAmerican might be awarded if it eventually proved that the casing was defective. The bankruptcy court conducted a hearing on the supplemental motions on April 9. At that hearing, TransAmerican argued that the bankruptcy court should postpone ruling on Toma's motion for immediate payment "until the court in which the action should be filed has determined the precise amount of Toma's liability to [TransAmerican]." On April 11, TransAmerican complied with the bankruptcy court's earlier order and filed suit against Toma in Texas state court.

On May 11, 1987, the bankruptcy court entered an order granting Toma's motion for immediate payment. It found that Toma had introduced evidence of severe financial hardship. It further found that Toma had submitted proof of insurance in an amount sufficient to cover any damages caused by defects in the casing. It therefore ordered TransAmerican immediately to pay Toma $2,288,634.45, the balance due. When TransAmerican failed to pay, and failed to take any steps to stay execution of the bankruptcy court's order, Toma garnished its bank accounts. After another hearing on June 15, the bankruptcy court ordered Toma to escrow $500,000 in an interest-bearing account to protect TransAmerican from third-party liens by Toma's suppliers. It further ordered Toma to assign to TransAmerican its interest under its product liability insurance policies to protect TransAmerican in the event that TransAmerican succeeded on its claim for damages allegedly caused by defective casing. The unescrowed portion of the garnished amount, approximately $1.8 million, was released to Toma.

After the bankruptcy court denied its motion for a new trial, TransAmerican appealed the bankruptcy court's May 11 payment order, as modified by the June 15 order, to the district court. In the meantime, on September 4, 1987, the bankruptcy court entered an order confirming TransAmerican's plan of reorganization. The plan provided that each holder of an allowed administrative expense claim was to "be paid the full amount of such expense or claim when due (but not earlier than the consummation date) except to the extent the Bankruptcy Court orders otherwise." Toma's allowed administrative expense claim was not treated separately in the confirmation order.

On June 30, 1989, the district court vacated the bankruptcy court's orders and remanded the case for findings of fact and conclusions of law on TransAmerican's objection to Toma's administrative expense claim. On August 30, 1989, the bankruptcy court ordered the parties to file motions regarding TransAmerican's motion for new trial, which it considered to have been revived by the district court's judgment. It further directed both parties to submit proposed findings of fact and conclusions of law regarding the March 11, 1987 hearing.

On September 13, 1989, TransAmerican filed an amended motion for new trial. ¹ On September 29, both parties submitted proposed findings of fact and conclusions of law regarding the March 1987 hearing. TransAmerican requested that payment be delayed until "final adjudication of all issues." Toma argued that equitable grounds supported allowance of payment prior to adjudication of TransAmerican's defective casing claim. Toma urged the bankruptcy court to make findings of facts and conclusions of law based upon the existing record from the March 1987 hearing.

On October 2, 1989, the bankruptcy court ordered Toma to return the escrowed $500,000 to TransAmerican, but denied without prejudice TransAmerican's request that the $1.8 million obtained by Toma through the garnishment be returned to TransAmerican (the "Escrow Dissolution Order"). On February 20, 1990, it entered findings of fact and conclusions of law, denying Toma's administrative expense claim (the "Administrative Expense Order")....