In re: SemCrude LP et al
MEMORANDUM ORDER GRANTING 6 MOTION to Dismiss the Appeal filed by SemCrude LP, ***Civil Case Terminated. Signed by Judge Leonard P. Stark on 5/21/12. (ntl)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
: Chapter 11
Case No. 08-11525 (BLS)
SEMCRUDE, L.P., et al.,
LUKE OIL COMPANY,
C&S OIL/CROSS PROPERTIES INC.,
WAYNE THOMAS OIL AND GAS, and
WILLIAM R. EARNHARDT,
Civil Action No. 09-994-LPS
SEMCRUDE, L.P., et al.,
At Wilmington this 21st day ofMay, 2012, having reviewed the motion to dismiss of
SemCrude, L.P. and its affiliated reorganized debtors (collectively, the "Reorganized Debtors" or
"Appellees") regarding the appeal (the "Appeal") filed by Luke Oil Company, C&S Oil/Cross
Properties Inc., Wayne Thomas Oil and Gas, and William R. Earnhardt (collectively, "Luke Oil"
or "Appellants"), and the papers filed in connection therewith;
IT IS ORDERED that the motion to dismiss the Appeal (the "Motion") (D.I. 6) is
GRANTED, for the reasons discussed below:
BACKGROUND 1 AND PARTIES' CONTENTIONS
Luke Oil appeals from the following orders entered in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"): ( 1) the Order
Establishing Procedures for the Resolution of Liens Asserted Pursuant to Producers' Statutory
Lien or Similar Statutes (the "Lien Procedures Order"); (2) the Order Denying Motion of Luke Oil
Company, eta!., on Behalf of Themselves and All Similarly Situated Persons for Reconsideration
of [the Lien Procedures Order] or, in the Alternative, for Certification to the Third Circuit of
Certain Issues (the "Reconsideration Order"); (3) the Order (and accompanying Opinion) entered
on June 19, 2009 in Adversary Proceeding No. 08-51445 (BLS) (the "June Decisions"); and
(4) the Order Confirming Debtors' Fourth Amended Joint Plan of Affiliated Debtors Pursuant to
Chapter 11 ofthe Bankruptcy Code (the "Confirmation Order"). (D.I. 1)
By their Motion, the Reorganized Debtors contend that the Appeal (D.I. 1) should
be dismissed in its entirety as equitably moot. (See D.l. 7; D.l. 18)
With respect to the subject Fourth Amended Joint Plan of Affiliated Debtors
Pursuant to Chapter 11 of the Bankruptcy Code (the "Plan"), the Reorganized Debtors point out
that the Plan was confirmed on October 28, 2009 by the Bankruptcy Court- over the objection of,
inter alia, Luke Oil; the Confirmation Order was not stayed. According to the Reorganized
Debtors, on November 30, 2009 (the "Effective Date") the Plan was consummated. The
Reorganized Debtors further state that they entered into numerous complex and intricate
transactions consistent with the Plan, including distributing $500 million in cash and $1 billion in
For additional background, see Manchester Securities Corp. v. Serncrude, L.P. (In re
Serncrude, L.P.) ("Manchester"), 2011 WL 675033 (D. Del. Feb. 18, 2011), aff'd, SernCrude,
L.P. v. Manchester Securities Corp. ("SernCrude"), 456 F. App'x 167 (3d Cir. Jan. 3, 2012).
value of new common stock and warrants to thousands of creditors, all of which would be almost
impossible to unravel. 2
Appellees submit that appeal of the Lien Procedures Order, the Reconsideration
Order, and the June Decisions, like the appeal of the Confirmation Order, should be dismissed on
the grounds of equitable mootness. Appellants state that they "do not seek to overturn the
confirmation," but "[r]ather ... simply seek their day in court." (D.I. 17 at 8) The Reorganized
Debtors respond that while it is "unclear exactly what relief Appellants request," "it appears that
Appellants' vision of 'their day in court' is the implementation of an entirely different set of
procedures to determine lien rights in this bankruptcy case." (D.I. 18 at 5)
As the Reorganized Debtors also explain, on September 8, 2008 certain of the
Luke Oil appellants filed an adversary complaint, seeking class certification and alleging (as did
other Oklahoma oil producers) a statutory trust under Oklahoma law. (See D.I. 7 at 3, 5-6; D.I. 9
at A-35 to A-52 (Adv. Pro. No 08-51407 (Bankr. D. Del.), D.I. 1, Compl.))
Shortly after Appellants filed their adversary complaint, the Debtors negotiated the
Lien Procedures Order with several large producers of oil and gas. (See D.I. 17 at 2)
Through that order, the Bankruptcy Court determined that it would
rule on certain issues of law common to multiple creditors through a
'test case' procedure where creditors could opt-in. If non-parties
chose not to do so, the decisions on the issues of law likely would
influence later decisions, but would not constitute res judicata
against non-parties. Luke Oil suggested an alternative procedure,
Among other things, the Reorganized Debtors: entered into two new credit facilities
aggregating $625 million in financing; entered into a $300 million Second Lien Term Facility (as
defined in the Plan); created a new corporate structure, including issuing shares of common stock
and warrants; and distributed approximately $500 million of cash and approximately $1 billion in
value of new common stock and warrants to thousands of creditors in accordance with the Plan.
(See D.I. 7 at 2-3)
whereby Luke Oil would serve as a class representative for an
'opt-out' class. The Bankruptcy Court chose to follow the 'test
case' approach when it entered the Lien Procedures Order whereby
'the parties ... present the Court with legal issues related to the
[statutory lien and trust claims] in a coordinated and omnibus
fashion that will allow the Court to determine and/or dispose of
legal issues that apply to multiple parties through a single process.
(D.I. 7 at 6) The Lien Procedures Order was entered over objection, and Appellants' adversary
action was ultimately stayed. (See id.; D.l. 17 at 2)
After entry ofthe Lien Procedures Order, numerous other producers (who asserted
statutory lien and/or trust rights under the laws of Oklahoma and other states), as well as other
interested parties, filed suits consistent with the Lien Procedures Orders. While all parties,
including Luke Oil, were invited to participate in the relevant proceedings, Luke Oil declined.
(D.I. 7 at 6)
In connection with such proceedings, the Bankruptcy Court later entered the June
Decisions. Thereafter, the Debtors, Secured Lenders, and the Official Producers Committee
reached a settlement, whereby each party would support a reorganization plan. (See id. at 7) Such
settlement - agreed to by all of the major creditor groups of the Debtors - ultimately led to
inception of the Plan. Luke Oil withheld its support of the Plan; its objection was overruled.
"The doctrine of equitable mootness provides that an appeal should be dismissed
as moot when, even though effective relief could conceivably be fashioned, implementation of
that reliefwould be inequitable." SemCrude, 4 F. App'x at 169; see also In re Continental
Airlines ("Continental II"), 203 F.3d 203, 209 (3d Cir. 2000). The determination of whether an
appeal is equitably moot requires a "discretionary balancing of equitable and prudential factors."
In re Continental Airlines ("Continental!"), 91 F.3d 553, 560 (3d Cir. 1996) (en bane).
Specifically, the Third Circuit has recognized five factors courts should consider in evaluating
whether an appeal should be dismissed under the doctrine of equitable mootness:
(1) whether the reorganized plan has been substantially
consummated; (2) whether a stay has been obtained; (3) whether the
relief requested would affect the rights of parties not before the
Court; (4) whether the relief requested would affect the success of
the plan; and (5) the public policy of affording finality of
Id Applying these factors here, the Court concludes that Luke Oil's appeal is equitably moot.
The Plan has been substantially consummated. The Bankruptcy Code defines
"substantial consummation" as the:
(A) transfer of all or substantially all of the property proposed by the
plan to be transferred; (B) assumption by the debtor or by the
successor to the debtor under the plan of the business or of the
management of all or substantially all of the property dealt with by
the plan; and (C) commencement of distribution under the plan.
11 U.S.C. § 1101(2). The Third Circuit has already affirmed the determination of substantial
consummation of the Plan, stating:
The Plan has been substantially consummated. . . . In this case
those requirements [of 11 U.S.C. § 1101(2)] are clearly satisfied.
As provided for by the Plan, the Debtors transferred assets to newly
incorporated entities, issued new stock and warrants, entered into
loan agreements and credit facilities, and distributed hundreds of
millions of dollars to their prepetition creditors.
SemCrude, 456 F. App'x at 170.
Next, "[b]ecause ofthe nature ofbankruptcy confirmations ... it is obligatory
upon appellant ... to pursue with diligence all available remedies to obtain a stay of execution."
Nordhof!Invs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180, 186-87 (3d Cir. 2001) (internal
quotation marks omitted). Here, however, Luke Oil neither sought expedition of its appeal, nor
sought or obtained a stay of the Confirmation Order pending appeal. "The existence or absence of
a stay is a critical factor in determining whether to dismiss an appeal under the doctrine of
equitable mootness." Kuntz v. Saul, Ewing, Remick & Saul (In re Grand Union Co.), 200 B.R.
101, 105 (D. Del. 1996). Indeed, it "is obligatory upon appellant ... to pursue with diligence all
available remedies to obtain a stay of execution of the objectionable order ... if the failure to do
so creates a situation rending it inequitable to reverse the orders appealed from." SemCrude, 456
F. App'x at 171 (internal quotation marks omitted).
Third, the impact of a possible reversal of the Confirmation Order upon numerous
third parties not before the Court favors a finding of equitable mootness. See Manchester, 2011
WL 675033, at *2 ("[G]ranting [Appellant] the relief it seeks would impact numerous third parties
not before the Court, including the Reorganized Debtors' creditors and stockholders."); see also
SemCrude, 456 F. App'x at 171. Equitable mootness "protects the interests of non-adverse third
parties who are not before the reviewing court but who have acted in reliance upon the plan as
implemented." Continental I, 91 F.3d at 562 (internal quotation marks omitted).
Moreover, dismissal under the equitable mootness doctrine is warranted "if the
relief requested ... would jeopardize the success of the reorganization plan by causing its reversal
or unraveling .... " In re Genesis Health Ventures, Inc., 204 F. App'x 144, 146 (3d Cir. Oct. 4,
2006) (internal quotation marks omitted). "A bankruptcy appeal will jeopardize the success of a
reorganization plan if granting the requested relief: (1) effectively impos[es] a different plan of
reorganization on the parties ... or (2) create[ s] an unmanageable, uncontrollable situation for the
Bankruptcy Court." In re Spansion Inc., 2011 WL 3420441, at *11 (D. Del. Aug. 4, 2011)
(internal quotation marks and citations omitted). The Court must consider whether the appellant
seeks "to knock the props out from under the authorization for every transaction that has taken
place," pursuant to the confirmed Plan. Nordhoff, 258 F.3d at 189 (internal quotation marks
omitted). Here, Appellants insist they "do not seek to overturn the confirmation," but rather
"simply seek their day in court." (D.I. 17 at 8) The Court disagrees. It is unclear what Appellants
hope to accomplish short of reversal ofthe Confirmation Order and the earlier, related decisions.
(See D.I. 7 at 21; D.I. 18 at 1, 5; see also generally D.l. 2; D.I. 17; D.I. 21) Altering the
Bankruptcy Court's determination in the manner Appellants request would jeopardize the entire
reorganization Plan. (See D.I. 7 at 21-22)
Lastly, the Court finds that the public policy of affording finality to bankruptcy
judgments weighs in favor of dismissing this appeal. "[T]he importance of allowing approved
reorganizations to go forward in reliance on bankruptcy court confirmation orders may be the
central animating force behind the equitable mootness doctrine." Continental I, 91 F.3d at 565.
The Third Circuit has recently emphasized this point, stating:
[W]e should ask whether we want to encourage or discourage
reliance by investors and others on the finality of bankruptcy
confirmation orders. The strong public policy in favor of
maximizing debtors' estates and facilitating successful
reorganization, reflected in the Code itself, clearly weighs in favor
of encouraging such reliance.
SemCrude, 456 F. App'x at 171 (internal quotation marks omitted). Here, given the number of
parties involved in the negotiation, approval, and substantial consummation of the Plan, the Court
concludes that public policy favors leaving the Plan undisturbed.
Consistent with the foregoing analysis, Appellees' motion to dismiss (D.I. 6) is
UNITED STATES DISTRICT JUDGE
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