IN RE: ATP Oil & Gas Corporation

Filing 86

ORDER AND REASONS granting 80 Motion to Dismiss for Failure to State a Claim. Signed by Judge Sarah S. Vance on 1/4/17. (jjs)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
RODNEY TOW, TRUSTEE
VERSUS

CIVIL ACTION
NO. 15- 3141

T. PAUL BULMAHN, ET AL.

SECTION “R” (1)

ORDER AND REASONS
Rodney Tow, the Chapter 7 bankruptcy trustee for ATP Oil and Gas
Corporation, sues defendants—former officers of ATP—for fraudulent
transfer. Defendants move to dismiss the Trustee’s complaint for failure to
state a claim.1 For the following reasons, the Court grants the motion.

I.

BACKGROUND
A. Parties and Claims
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

1

R. Doc. 80.

production of oil and natural gas properties in the Gulf of Mexico and other
locations.2
The Trustee originally sued eighteen defendants, most of whom are
former officers or directors of ATP, for breaches of fiduciary duty, fraudulent
transfer, civil conspiracy, and aiding and abetting breaches of fiduciary duty.
In a previous order, the Court dismissed the Trustee’s Second Amended
Complaint. 3 In doing so, the Court granted the Trustee leave to replead only
two claims: (1) his claim that defendant Bulmahn breached his fiduciary duty
of loyalty by causing ATP to enter unfavorable contracts to benefit “friends”
at the corporation’s expense; and (2) his constructive fraudulent transfer
claim, in which he sought to void and recover cash and stock bonuses paid to
defendants Bulmahn, Tate, Reese, Morris, and Godwin under Section 24.005
of the Texas Business and Commerce Code and Section 548(a)(1) of the
Bankruptcy Code.
In the Trustee’s Third Amended Complaint he asserts only the latter
claim. The remaining defendants, therefore, are:
●
●

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3

T. Paul Bulmahn, former Chief Executive Officer and Chairman of
ATP's Board of Directors;
Leland Tate, former President of ATP;

R. Doc. 41 at 2.
R. Doc. 71.
2

●

Albert L. Reese, Jr., former Chief Financial Officer;

●

George R. Morris, former Chief Operating Officer; and

●

Keith R. Godwin, former Chief Accounting Officer.
B. Factual Background

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.” 4 In
response, the federal government issued moratoria on new and existing
deepwater drilling in the Gulf of Mexico. 5 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.6 The Trustee alleges these developments
deferred or eliminated many of ATP’s streams of revenue and increased its
costs of operation.7 As a result, ATP experienced immediate difficulties
servicing its debt and paying expenses.8 The Trustee alleges that “as early as
May 2010, ATP began to have problems with liquidity . . . and entered the
zone of insolvency.”9

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5
6
7
8
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R. Doc. 72 at 4.
Id. at 5.
Id.
Id. at 6.
Id.
Id.
3

Following the BP Oil Spill, ATP invested substantial sums in two
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. 10 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. 11 The new figures suggested that the field contained only $25.5 million
in proven undeveloped reserves and $538.8 million in probable undeveloped
reserves.12
The second project involved ATP’s efforts to obtain drilling licenses in
the Eastern Mediterranean Sea for two ATP subsidiaries. 13 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. 14 The Trustee alleges that “it was estimated that ATP would

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11
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14

Id. at 7.
Id.
Id.
Id. at 8.
Id.
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need to spend $250 million on those licenses before production.” 15 He
further 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.” 16 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.17 He further contends that
although “millions of dollars were spent,” ATP-EM-2 was unable to obtain
any drilling licenses. 18
Ultimately, ATP proved unable to survive the disruptions caused by the
BP Oil Spill and drilling moratoria. On August 17, 2012, ATP filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code in the Southern
District of Texas.19 ATP’s case was converted to a Chapter 7 proceeding on
June 26, 2014, and Tow was appointed Trustee for ATP’s estate.20
The Trustee contends that, despite ATP’s poor performance and
eventual bankruptcy, defendants Bulmahn, Tate, Morris, Reese, and Godwin

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20

Id.
Id.
Id.
Id.
Id. at 4.
Id.
5

obtained a total of over $9 million in cash and $3.5 million in stock bonuses
during the years 2010 and 2011. 21
C. This Lawsuit
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 District of Texas. 22
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. 23 Judge Miller
granted the motion on July 28, 2015 and transferred the Trustee's lawsuit to
this Court. 24
On July 27, 2015, the Trustee filed a four-count First Amended
Complaint. 25 On September 24, 2015, the Trustee amended his pleadings

Id.
R. Doc. 3.
23
R. Doc. 6. In the Fifth Circuit, the first-to-file rule is a discretionary
doctrine, which provides that “when related cases are pending before two
federal courts, the court in which the case was last filed may refuse to hear
it if the issues raised by the cases substantially overlap.” Cade Co. v.
Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999).
24
R. Doc. 9.
25
R. Doc. 8.
6
21

22

and filed a Second Amended Complaint. 26 Following the Court’s order
resolving motions to dismiss the Second Amended Complaint, the Trustee
filed a Third Amended Complaint, alleging fraudulent transfer based on the
compensation that ATP paid to defendants in 2010 and 2011. Defendants
now move to dismiss the Third Amended Complaint.

II.

LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead

enough facts “to state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). A claim is facially plausible when the plaintiff pleads
facts that allow the court to “draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. at 678. A court must
accept all well-pleaded facts as true and must draw all reasonable inferences
in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239
(5th Cir. 2009); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996).
A legally sufficient complaint must establish more than a “sheer
possibility” that the plaintiff’s claim is true. Iqbal, 556 U.S. at 678. It need
not contain detailed factual allegations, but it must go beyond labels, legal

26

R. Doc. 41.
7

conclusions, or formulaic recitations of the elements of a cause of action. Id.
In other words, the face of the complaint must contain enough factual matter
to raise a reasonable expectation that discovery will reveal evidence of each
element of the plaintiff’s claim. Lormand, 565 F.3d at 257. If there are
insufficient factual allegations to raise a right to relief above the speculative
level, or if it is apparent from the face of the complaint that there is an
insuperable bar to relief, the claim must be dismissed. Twombly, 550 U.S.
at 555.

III. DISCUSSION
In the Third Amended Complaint, the Trustee seeks to avoid cash and
stock bonuses paid to defendants in 2010 and 2011 as fraudulent
conveyances under the Texas Uniform Fraudulent Transfer Act (“TUFTA”)
and Section 548(a)(1) of the Bankruptcy Code.
Under TUFTA, a bankruptcy trustee may avoid a debtor’s transfers that
defraud the estate’s creditors. Tex. Bus. & Com. Code § 24.008(a)(1); see
also Spring St. Partners-IV, L.P. v. Lam, 730 F.3d 427, 437 (5th Cir. 2013).
Fraudulent transfers are divided into two types: actual fraudulent transfers,
and constructive fraudulent transfers.

8

Here, the Trustee alleges only

constructive fraud under section 24.005 of TUFTA. 27

Section 24.005

provides that a transfer is constructively fraudulent if the debtor made the
transfer:
without receiving a reasonably equivalent value in exchange for
the transfer or obligation, and the debtor:
(A) was engaged or was about to engage in a business or a
transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction
....
Tex. Bus. & Com. Code § 24.005(a).
Similarly, under Section 548(a)(1) of the Bankruptcy Code, a
bankruptcy trustee may avoid a transfer that was made within two years
before the date the bankruptcy petition was filed if the debtor “received less
than a reasonably equivalent value in exchange for such transfer or
obligation” and either:
was insolvent on the date that such transfer was made or such
obligation was incurred, or became insolvent as a result of such
transfer or obligation; was engaged in business or a transaction,
or was about to engage in business or a transaction, for which any
property remaining with the debtor was an unreasonably small
capital; intended to incur, or believed that the debtor would
incur, debts that would be beyond the debtor’s ability to pay as
such debts matured; or made such transfer to or for the benefit
of an insider, or incurred such obligation to or for the benefit of

27

See R. Doc. 82 at 11.
9

an insider, under an employment contract and not in the
ordinary course of business.
11 U.S.C. § 548(a)(1)(B). Thus, to prevail on a constructive fraud claim under
this provision, a plaintiff must plead and prove that: “(1) the debtor
transferred an interest in property, (2) the transfer of that interest occurred
within two years prior to the filing of the bankruptcy petition, (3) the debtor
was insolvent on the date of the transfer or became insolvent as a result
thereof, and (4) the debtor received less than reasonably equivalent value in
exchange for such transfer.” In re Inspirations Imports, Inc., No. 13-4331,
2014 WL 1410243, at *2 (N.D. Tex. Apr. 3, 2014) (citing In re GWI PCS 1 Inc.,
230 F.3d 788, 805 (5th Cir. 2000)).
In dismissing the Trustee’s fraudulent transfer claims in the Second
Amended Complaint, the Court faulted the Trustee for providing no factual
material to support the assertion that ATP did not receive reasonably
equivalent value for its payments to defendants. The Third Amended
Complaint does nothing to cure this deficiency.
The Trustee’s factual allegations on this point remain essentially
unchanged.

The complaint still lacks any allegation that defendants’

compensation was out-of-line with peer firms, or that defendants did not
honestly and diligently perform their jobs. Instead, the Trustee simply
includes additional facts concerning defendants’ allegedly poor business
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decisions. The upshot of these allegations is that defendants “rolled the dice
on the future of the company by leveraging all of the company’s actual
revenue producing properties.”28 The Trustee, however, concedes that
defendants “believed this may have been a sound business practice,” even if
the gamble “did not pay off as the company lost hundreds and hundreds of
millions of dollars in 2010 and 2011.”29
The Trustee’s constructive fraudulent transfer allegations remain
inadequate to survive a motion to dismiss. Allegedly poor executive
performance, without more, does not state a plausible claim for fraudulent
transfer. See Scouler & Co., LLC v. Schwartz, No. 11-06377, 2012 WL
1502762, at *6 (N.D. Cal. Apr. 23, 2012) (finding allegation that “Asyst failed
to receive reasonably equivalent value in exchange for this ill-advised bonus,
which came at a time when [Asyst’s former CEO] had failed to preserve the
Company’s financial position” insufficient to state constructive fraudulent
transfer claim); In re Hydrogen, L.L.C., 431 B.R. 337, 353 (Bankr. S.D.N.Y.
2010) (dismissing constructive fraudulent transfer claim in light of “a
complete absence of facts supporting the allegation that the Debtor received

28
29

R. Doc. 72 at 9.
Id.
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less than reasonably equivalent value”).

The Trustee’s complaint must

therefore be dismissed. 30
Further, as to ATP’s solvency or the alleged size of its assets at the time
of the transfer, the complaint remains conclusory, failing to point to any
financial data showing that ATP was actually insolvent or had little capital
when any of the alleged compensation was paid. The Trustee’s allegation
that “ATP’s debts remained greater than its assets at fair valuation” 31 from
May 2010 forward is a mere conclusion. In addition, ATP’s 2011 10-K, which
the Trustee refers to in the complaint, does not show that ATP’s debts were
greater than its assets at fair valuation at the time of each alleged transfer or
say what its total asset value was or whether it could pay its debts as they
became due at the time of each of the alleged transfers.
Finally, the Court finds that the Trustee’s claims must be dismissed
with prejudice. Even in this Third Amended Complaint, the Trustee is still
“not making progress toward an acceptable complaint,” and additional leave
to amend is therefore unwarranted. Bank of Am., N.A. v. Knight, 725 F.3d

Because it finds that the Trustee has still failed to satisfy the general
pleading standards of Federal Rule of Civil Procedure 8(a), the Court again
declines to resolve the parties’ dispute over whether constructive fraudulent
transfer must comply with the heightened pleading requirements of Rule
9(b).
31
R. Doc. 72 at 7.
12
30

815, 819 (7th Cir. 2013). The Trustee’s vague, conclusory allegations are
particularly striking given that, as the trustee of ATP’s estate, he has “ample
access to [ATP’s] books and records.” Id. For these reasons, the Court finds
that further leave to amend is not warranted in this case. See id. (“[I]n court,
as in baseball, three strikes and you’re out.”); see also Jacquez v. Procunier,
801 F.2d 789, 792 (5th Cir. 1986) (“At some point a court must decide that a
plaintiff has had fair opportunity to make his case; if, after that time, a cause
of action has not been established, the court should finally dismiss the suit.”).

IV.

CONCLUSION

For the foregoing reasons, defendants’ motion to dismiss is
GRANTED. The Trustee’s claims are DISMISSED WITH PREJUDICE.

4th
New Orleans, Louisiana, this _____ day of January, 2017.

_____________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

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