Wallen v. Tauren Exploration, Inc. (In re Cubic Energy, Inc.)

• Decision Date: 02 July 2019
• Docket Number: Case No.: 15-12500 (CSS) (Jointly Administered),Adv. Proc. No.: 18-50698 (CSS),Adv. Docket No.: 12
• Citation: 603 B.R. 743
• Parties: IN RE CUBIC ENERGY, INC., et al., Debtors. Calvin A. Wallen, III and Fossil Operating, Inc., Plaintiffs, v. Tauren Exploration, Inc. and Tauren Exploration, Inc. Liquidating Trust, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

603 B.R. 743

IN RE CUBIC ENERGY, INC., et al., Debtors.Calvin A. Wallen, III and Fossil Operating, Inc., Plaintiffs,

v.Tauren Exploration, Inc. and Tauren Exploration, Inc. Liquidating Trust, Defendants.

Case No.: 15-12500 (CSS) (Jointly Administered)

Adv. Proc. No.: 18-50698 (CSS)

Adv. Docket No.: 12

United States Bankruptcy Court, D. Delaware.

Signed July 2, 2019

BAYARD, P.A., Neil B. Glassman, Scott D. Cousins, Justin R. Alberto, 600 North King Street, Suite 400, Wilmington, DE 19801 -and- HOLLAND & KNIGHT LLP, Robert W. Jones, Brent R. McIlwain, Brian Smith, 200 Crescent Court, Suite 1600, Dallas TX 75201, Counsel for Debtors and Debtors-in-Possession

FOX ROTHSCHILD LLP, Thomas M. Horan, 919 N. Market Street, Suite 300, Wilmington, DE 19899, Allen J. Guon, 321 N. Clark Street, Suite 800, Chicago, IL 60654 -and- DENTONS US LLP, Barry Cannaday, 2000 McKinney Avenue, Suite 1900, Dallas, TX 75201-1855, Counsel for Plaintiffs

RICHARDS, LAYTON & FINGER, P.A., Marcos A. Ramos, Brendan J. Schlauch, One Rodney Square, 920 North King Street, Wilmington, DE 19801 -and- WIENER, WEISS & MADISON, A P.C., R. Joseph Naus, Seth M. Meyers, Reid A. Jones, 333 Texas Street, Suite 1000, Shreveport, Louisiana 71101, Counsel to the Defendants

OPINION ¹

Sontchi, C.J.

INTRODUCTION

The oil and gas industry has long been a magnet for adventurers and businesses hoping to ride the wave of an oil boom. Sadly for some, their aspirations did not pan out and their ventures succumbed to the industry's boom-or-bust cycle. Before the Court is a motion related to successive bankruptcies stemming from such events.

A reorganized debtor's purported representative and former CEO are suing the liquidating trust of debtor's erstwhile equity holder and business partner. They allege that a release in the debtor's plan of reorganization bars the claims that the liquidating trust is pursuing against them in the Northern District of Texas. The liquidating trust asserts that the matter is not ripe and moves to dismiss on Rule 12(b)(1) and Rule 12(b)(6) grounds. It writes that the matter is not ripe because the complaint is asking for an advisory opinion and further insists that a final order is required before any court can rule on the complaint. In the alternative, the trust also moves for permissive abstention and venue transfer to the Northern District of Texas.

Typically, ripeness is a question of justiciability and appropriate for resolution under 12(b)(1). But when it is intertwined with substantive issues, 12(b)(6) applies. Because here the question of whether a final order's absence precludes ripeness is entangled with the issue of whether a final order is necessary, the Court proceeds with 12(b)(6). It finds that the complaint has put forth a plausible case for relief. To the extent that ripeness arguments may stand separately, the Court holds that the complaint satisfies this Circuit's ripeness test. Moreover, the Court finds that the interests of justice do not counsel it to abstain from or transfer a matter about the interpretation of its own plan. It accordingly denies the motion in its entirety.

JURISDICTION & VENUE

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)

PROCEDURAL BACKGROUND

Before the Court is a motion ("Motion") to dismiss, abstain, or transfer the venue of a complaint affecting two bankruptcies, one in Texas and one in Delaware.

On December 11, 2015, Cubic Energy, Inc. ("Cubic Energy") filed for Chapter 11 in this Court. On February 17, 2016, this Court issued an order approving debtor Cubic Energy's third amended plan of reorganization ("Cubic Order" and "Cubic Plan" or "Plan").² To facilitate the restructuring, the Plan included a release ("Release") and injunctions barring releasing parties ("Releasing Parties") from suing other parties ("Released Parties").³ This Release did not apply to claims related to fraud, gross negligence, or willful misconduct.⁴ Soon thereafter, Tauren Exploration, Inc. ("Tauren"), Cubic Energy's prepetition equity holder, filed a voluntary Chapter 11 on June 3, 2016 for which a plan was confirmed March 24, 2017.⁵ Tauren was controlled by Calvin A. Wallen, III ("Wallen"), who also owned Fossil Operating, Inc. ("Fossil"). In May 2017, Wallen and Fossil moved for this Court to interpret the Release to bar Tauren's trustee from filing certain suits against them ("Enforcement Motion")⁶ . The Court denied the Enforcement Motion, explaining that no litigation was ongoing and interpreting the Release would constitute an impermissible advisory opinion. Ruling on the Enforcement Motion would not invalidate a clause, order a party to do something, or otherwise resolve the parties' litigation.⁷ Since that motion, crucial events involving Wallen and Fossil have occurred. A Tauren representative initiated adversary proceedings against Wallen and Fossil in Tauren's own bankruptcy case. Tauren's liquidating trust Tauren Exploration, Inc. Liquidating Trust ("Liquidating Trust") filed three adversary actions against Wallen (including one also against Fossil) ("Tauren Litigation").⁸ And Gloria's Ranch, LLC's ("Gloria's Ranch") – a Tauren lessor – adversary proceeding ("Gloria's Ranch Litigation") against Wallen in Tauren's bankruptcy has been amended to designate Tauren's trustee – suing on the Liquidating Trust's behalf – as plaintiff.⁹ (Collectively with the Tauren Litigation, "Texas Adversary Proceedings".) Arguing that circumstances have changed and their case is ripe, Wallen and Fossil (collectively "Plaintiffs") once again ask this Court to interpret its Cubic Order and Cubic Plan. This time, they point to the ongoing Texas litigation involving themselves and Tauren and the Liquidating Trust ("Defendants"). Plaintiffs contend that the injunction and Release in the Cubic Plan and the Cubic Order bar certain counts in the Texas Adversary Proceedings and ask the Court to hold the same.¹⁰ The allegedly barred counts assert claims for constructive fraudulent transfers, avoidance of preference transfers, and veil-piercing for fraud.¹¹ These claims are made under both Bankruptcy and state law and appear to concern Wallen's activities from 2009 to 2016 and Fossil's activities from 2015 to 2016.¹²

Accordingly, Plaintiffs' complaint ("Complaint") demands declaratory and injunctive relief. Defendants respond that the Release requires the issuance of a final order determining that certain acts constitute willful misconduct, gross negligence, or fraud before the Complaint can be brought. And they note that no such order exists here. Moreover, they argue that a ruling would constitute an impermissible advisory opinion.

Defendants thus contend that the Complaint is not ripe and Delaware is not the appropriate place for this dispute. As such, they move to 1) dismiss the complaint for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1) and for failure to state a claim under Fed. R. Civ. P. 12(b)(6), 2) transfer the venue to Texas, 3) have the Court abstain from ruling on the issues pending before the Texas Bankruptcy Court.

STATEMENT OF FACTS

Before their finances went awry and their relationship soured, Tauren and Cubic Energy were business partners.

In 2004, Gloria's Ranch granted a three-year oil and gas lease in Louisiana to Tauren, which assigned 49% of its interest to Cubic Energy.¹³ Though the lease's primary term was three years, it was to continue so long as the land continued to produce oil and gas.¹⁴ To assure the fairness of such arrangements, Louisiana law provides for the termination of oil and gas leases that fail to produce in "payable quantities" beyond their primary term.¹⁵ This prohibition prevents the maintenance of such leases for speculative or selfish reasons. Whether a quantity is "payable" turns on whether a "reasonably prudent operator would continue production considering the particular circumstances in the light of the nature and customs of the industry involved."¹⁶

Fossil operated this lease and others in the area.¹⁷ Four years after the land's lease, its Haynesville Shale formation became a very hot commodity.¹⁸ Unable to afford to drill this well, Cubic Energy and Tauren set out to find buyers for their interests.¹⁹ They soon struck a deal with Exco USA Asset, Inc ("Exco"). In 2009, Exco purchased Tauren's Haynesville Shale rights for $83 million - $52 million to Tauren and $31 million to Cubic Energy.²⁰ Unfortunately for Tauren, after taxes, deductions, and transaction costs, it received very little of its proceeds.²¹

More trouble followed. In 2010, Gloria's Ranch alleged that the lease had expired due to a lack of production in paying quantities and demanded that Cubic Energy, Exco, and Tauren release the lease. The three parties refused and Gloria's Ranch sued to kick them out. The Louisiana court sided with Gloria's Ranch and ruled that Cubic Energy and Tauren were jointly and severally liable for $24 million.²² Tauren has filed a Motion for Rehearing with the Louisiana Supreme Court and this motion was pending at the time of the Complaint. (In September 2018, the court granted a limited rehearing on the effects of the reversal of Wells Fargo's liability.)²³

In the meantime, facing mounting problems, Cubic Energy and Tauren filed for bankruptcy within months of one another. Cubic Energy filed in this Court, which approved a confirmation plan with release provisions.

Sensing that their former ally was about to sue them, Wallen and Fossil filed the Enforcement Motion asking this Court to enjoin Tauren's trustee from doing so. They contended that Tauren released its rights to sue them in the Cubic Plan.²⁴ After the filing, the Texas Adversary Proceedings ensued. This Court denied the Enforcement Motion.

ANALYSIS

A. DISMISSAL

1. Fed. R. Civ. P. 12

Fed. R. Civ. P. 12 provides numerous pathways for courts and litigants to dismiss...