Compton

Filing 15

OPINION on Appeal. The bankruptcy court's dismissal will be affirmed. (Signed by Judge Lynn N. Hughes) Parties notified. (ghassan, 4)

UNmD STATES DISTRICT COURT

In Re: MPF Holdings us LLC, et al.
Debtors.
Jeff Compton,
Appellant,

versus
Mustang Engineering Ltd.,
Appellee.

SOUTHERN DISTRICT OF TEXAS

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Bankruptcy 08-36084-H4-II
Adversary 10-3477

Civil Action H-I3-I964

Opinion on Appeal
1.

Introduction.
In the reorganization in bankruptcy of MPF Holdings us LLC, the plan created a litigation

trust. The trust has sued Mustang Engineering Ltd. for money paid it on a contract by MPF
before its bankruptcy. Because Mustang's contract with MPF was assigned in the plan to COSCo
(Dalian) Co. Ltd, the trust has no interest in the payments or other aspects of the contract as
a residual claim.

2.

Background.
Mustang is an engineering firm. In 2007, it contracted with Dragados Offshore S.A. to

design a ship for oil exploration. InJune 2008, Dragados assigned its contract with Mustang
to MPF. In late September 2008, MPF filed bankruptcy under Chapter II.
As part of the reorganization, Mustang' 5 contract with MPFwas acquired by Dalian. The
exchange was essentially that Dalian paid cash for MPF's rights in the Mustang contract and the
partially built ship.
Another part of the plan created a litigation trust - a trust capitalized with MPF's
residual litigation claims, including this action. The trustee sued Mustang to recover as

preferences payments by MPF to Mustang before the bankruptcy. The trustee now appeals the
bankruptcy court's dismissal of his suit. It held that (a) the assumption of Mustang's contract
barred this suit and

(b) the preference claim against Mustang was released by the

reorganization.

3.

Assumption & Assignment.
The trustee says that Mustang's contract was not assumed and assigned under the

bankruptcy rules. Rather, the trustee says that the novation between Mustang and Dalian were
independent agreements that do not trigger the consequences of assumption and assignment.
Once Dalian acquired the contract, it may renegotiate it at its discretion without reviving claims
in the estate.
Mustang's contract was executory - both sides remained obliged to perform. The rules
allow two options: assumption or rejection. I The plan says that "Mustang's contract, along with
several others, is assumed and assigned under each novation agreement." The plan also says
that contracts that are not assumed are rejected.
The reorganization was designed to salvage the value of the debtor by shedding some
assets for cash, renegotiating others, and abandoning still more to allow MPF to stay in business.
The plan acknowledged that MPF would be financially stronger if it had cash in exchange for a
contract and one-half a ship. The assumption adjusted the terms of the contract to make it
workable under the new circumstances.
By rejecting the contract, MPF would have gained nothing. By Dalian's assuming the
contract, MPF traded an obligation to finish the ship because the contract performance would
have needed a ship to engineer. Whether the transfer of the Mustang contract was
accomplished by an assignment, agreement, novation, or plan, the result remains that the estate
settled its affairs with Mustang globally with the bundle of arrangements in the modified contact
and ship sale.
Because MPF assumed and assigned Mustang's contract to another company, the trustee
may not now recover for preferential payments related to the contract. 2

I

II U.s.c. § 365.

2

In re Superior Toy &- Mfg. Co., 78 F'3d II75 (7th Gr. I996).

4.

Plan.
The trustee says that he may sue Mustang for preferential payments because neither the

plan nor another order released the claims.
Under the plan and the novation, the estate clearly relinquished its claims against
Mustang. The novations say that each agreement is a settlement and compromise of all claims
among the parties. The plan says that settled and released claims are excluded from those
retained by the litigation trust.
In the documents signed by the trustee's predecessor in title, the estate, the novations
are" comprehensive settlements." The plan unequivocally excludes these settlements from what
is retained by the litigation trust. Each is part of a unified transaction designed to reorganize
MPF.

Broadly, the trustee's interpretation amounts to guerrilla war after the surrender. MPF
signed a peace treaty. Some folks who stand to gain narrowly are attempting to revive settled
claims under the hounding of more litigation to get something the estate could not get through
the bankruptcy. Estates prosper when they can market assets that come with settled title,
including freedom from the nature of the asset as well as from the labyrinth of the code and the
mugging of lawyers.

If the trustee were allowed to recover preferences from a creditor that had accepted
commitments and made concessions to get cash into the estate, the litigation trust in equity
would be required to credit Mustang with the value of the changes it accepted in the novation.

5.

Conclusion.
Because Mustang's contract was assumed by Dalian and because the novation released

preference claims against Mustang, the trustee may not sue to recover Mustang's payments as
having been made in preference to other qualified creditors. The bankruptcy court's dismissal
will be affirmed.

zq

Signed

onAugu~oI5' at Houston, Texas.

Lynn N. Hughes
United States DistrictJudge