Lauter v. Citgo Petroleum Corporation
MEMORANDUM OPINION AND ORDER granting 14 MOTION to Dismiss Counts I and II and for Summary Judgment as to Count III; denying 37 MOTION for Request for Oral Argument Hearing; granting 38 MOTION to Supplement Motion for Leave to Fi le Supplemental Authority as to 27 Response in Opposition to Motion; and granting 41 MOTION for Leave to File SUPPLEMENTAL AUTHORITY IN SUPPORT OF PLAINTIFFS RESPONSE TO DEFENDANTS MOTION TO DISMISS. (Signed by Judge Sim Lake) Parties notified.(gclair, 4)
United States District Court
Southern District of Texas
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIV ISION
February 08, 2018
David J. Bradley, Clerk
RICHARD S . LAUTER, not
individually but solely as
Creditor Trustee of the GasMart USA , Inc . Creditor Trust,
CIVIL ACTION NO . H-17-2028
CITGO PETROLEUM CORPORATION ,
MRMOQAHDUM OPINION AHn ORDER
On June 30, 2017, plaintiff, Richard S . Lauter , as Creditor
Trustee of the Gas-Mart USA , Inc . Creditor Trust, filed a Complaint
ncitgo'), asserting claims for breach
violation of the automatic stay pursuant
5 362 (
Count 11), and avoidance
preferential transfer pursuant
S.C. 5 547 (
Count 111). Pending before the court are Citgo
Summary Judgment as to Counts I and 11 and for Summ ary Judgment as
Count III (
Docket Entry No.
L eav e
Support of Plaintiff's Response
Plaintiff's Response to
Defendant's M otion
reasons stated below, Citgo's
dism iss Counts
and 11 will be granted, Citgo's motion
will be granted, plaintiff's
oral argument will be denied , plaintiff's two motions
supplemental authority will be granted , and
action will be dismissed .
Relevant Facts and Procedural Backcroundl
2013, Gas-Mart USA ('
uDebtor') and Citgo entered into
(' (reement').2 Paragraph
Marketer Franchise Agreement
the Agreement governing nTerms
Payment' provided that in order to maintain a credit lim it Gas-Mart
could be required
furnish Citgo security agreements
collateral.3 Subsequently, Gas-Mart obtained a Surety Bond in the
amount of $1,500,000.00 from
The relevant facts are
No . 1, the Statem ent of
Corporation's Memorandum in
the Alternative for Summary
Fidelity and Deposit Company of
taken from the Complaint, Docket Entry
Material Facts in Citgo Petroleum
Support of Its Motion to Dism iss or in
Judgment as to Counts I and 11 and for
Summary Judgment as to Count III (
ucitgo's Memorandum'), Docket
Entry No . 15, pp . 7-14, %% 1-41, and the Response to Statement of
Material Facts and Statement of Additional Material Facts in
Plaintiff's Response to Defendant's Motion to Dism iss and
Memorandum of Authorities ('
/), Docket Entry
No . 27, pp . 10-14, %% 1-50.
zcomplaint, Docket Entry No . 1, p . 4 :% 15-19; A greement,
Exhibit 1 to Citgo's Memorandum, Docket Entry No . 15-3 .
% 5 ( ).
about June 9, 2015, Gas-Mart made
$68,185.69 to Citgo on certain outstanding invoicesx
On July 2, 2015 (
the npetition Date/),
corporations each filed separate voluntary petitions with
Bankruptcy Court seeking relief under Chapter
of the Bankruptcy
Case No. 15-41915-abf11).
Service Mart, Inc . filed a separate voluntary petition for relief
By orders of the Bankruptcy Court entered on
2015, and on November 25, 2015, the Ban kruptcy cases were
On the Petition Date Citgo held $221,190.12 in Gas-Mart credit
card receipts pursuant to the terms of the Agreement, and Gas-Mart
July 28, 2015,
Bankruptcy Court entered an order granting
4see Surety Bond included in Exhibit
Docket Entry No . 15-5, pp . 14-22 .
Citgo's Memorandum ,
complaint , Docket Entry No . 1, p . 13 % 66 . See also Citgo's
Memorandum , Docket Entry No . 15, p . 14 % 39; Plaintiff's Response ,
Docket Entry No. 27, p . 12 % 39.
complaint , Docket Entry No . 1, p . 3 %% 9-10, and 10 % 20 .
See also Citgo's Memorandum , Docket Entry No . 15, p . 7 % 47
Plaintiff's Response, Docket Entry No . 27, p . 10 % 4.
citgo 's Memorandum , Docket Entry No .
15, p .
Plaintiff's Response, Docket Entry No . 27, p . 10 % 5 .
7 % 5;
Complaint, Docket Entry No. 1, p. 5 % 23 (
alleging that Citgo held
approximately $228,000.00 in credit card receipts).
critical Vendor Motion and
Order, Exhib it
2 to Citgo's
or about August 6, 2015, Gas-Mart, the Surety, and Citgo
Citgo under the Surety Bond.
the Surety agreed
to the Surety Bond, and in fact did make a paym ent pursuant to the
Plaintiff acknowledges that the Surety agreed
paym ent to citgo pursuant to the surety Bond, but says
know the specific amounts that the Surety agreed to pay
fact, did pay pursuant to the Surety Bondx l
Surety filed a Proof
bankruptcy proceeding for $558,097.49.1
January and February of 2016, Gas-Mart sold substantially
a sset s . 1
Memorandum , Docket Entry No . 15-4. See also Citgo 's Memorandum ,
Docket Entry No . l5, p . 7 % 6; Plaintiff's Response, Docket Entry
No . 27, p . 10 % 6 .
Citgo ,s Memorandum , Docket ' Entry No . 15, p . 8 % 7, and
Plaintiff's Response, Docket Entry No . 27, p . 10 % 7. Vendor
Agreement , Exhibit 3 to Citgo's Memorandum , Docket Entry No . 15-5 .
ocitgo's Memorandum , Docket Entry No .
H plaintiff's Response, Docket Entry No . 27, p . 10 %% 8 and 1O .
Citgo's Memorandum , Docket Entry No . 15-6.
Ocitgo's Memorandum, Docket Entry No. 15, p . 8 % 11 (
Disclosure Statement, 5 V .A .S, Exhibit 7 to Citgo's Memorandum ,
Docket Entry No. 15-9, p. 21 of 117)7 Plaintiff's Response, Docket
Entry No . 27, p . 10 % 11.
2016, Gas-Mart filed Debtors' First Omnibus
Reject Executory Contracts (
uRejection Motion/ which
included a request
reject the Agreement
2016, the Bankruptcy Court entered its Order Granting Debtors'
First Omnibus Motion
Reject Executory Contracts (
/), which provided that Gas-Mart's executory contracts were
2016, the Creditors' Comm ittee filed its Initial
Plan and Disclosure Statementx 6
Bankruptcy Court confirmed the First Am ended Plan of Liquidation
'P1an'), which called
creditor trustee, and execution
trust agreement .l Pursuant to Article
the Gas-Mart USA ,
Mcitgo's Memorandum r Docket Entry No . 15, p . 8 % 12;
Plaintiffrs Response , Docket Entry No . 27 , p . 10 % 12 . See also
Rejection Motion, Exhibit 5 to Citgo's Memorandum, Docket Entry
No . 15-7 .
l citgo's Memorandum , Docket Entry No . 15, p . 9 % 14;
Plaintiff's Response, Docket Entry No . 27, p . 11 % 14 . See also
Rejection Order, Exhibit 6 to Citgo's Memorandum, Docket Entry
No. 15-8, p. 2 % 13 ('
'The Rejected Contracts are hereby rejected as
of March 1O, 2016.').
l citgo's Meporandum , Docket Entry No . 15, p . 9 % 17;
Plaintiff's Response, Docket Entry No . 27, p . 11 % 17 . See also
Disclosure Statement with Respect to First Amended Plan of
Liquidation Dated July 21, 2016, Exhibit 7 to Citgo's Memorandum ,
Docket Entry No. 15-9.
l citgo 's Memorandum , Docket Entry No . 15, p . 9 % 18, and
Plaintiff's Response, Docket Entry No. 27 , p . 11 % 18 . See also
Exhibit 8 to Citgo 's Memorandum , Docket Entry No . 15-10r pp . 1-25
Creditor Trust A greement, plaintiff was appointed as Trustee of the
creditor Trustx '
or about March 11, 2016, Citgo brought suit in the Judicial
District Court of Harris County, Texas, against
recover certain amounts due from Gas-Mart, and on April
the Surety removed the lawsuit to the United States District Court
for the Southern District of Texas, Case No. 4:16-cv-00952 (
Litigation/ g In the Surety Litigation, Citgo alleged that after
agreements with Citgo by inter alia failing
Purchases, store remodeling, and branding costs .20
Surety's motion for summary judgment
and denied Citgo's cross-motion for summary judgment, upon finding
that store remodeling and branding costs were
included in the
U t.- continued)
of 97 (
A) Confirming First Amended Plan of Liquidation
Dated July 21, 2016 and ( Approving Disclosure Statement with
Respect to First Amended Plan of Liquidation Dated July 21, 2016
Pursuant to 11 U.S.C. 5 1125)7 pp . 26-59 of 97 (
Exhibit A, Modified
First Amended Plan of Liquidation Dated July 21, 2016), and pp . 6097 of 97 (
Exhibit B, Gas-Mart USA, Inc. Creditor Trust Agreement)
OCitgo's Memorandum, Docket Entry No . 15, p . 9 % 19;
Plaintiff's Response, Docket Entry No . 27, p . 11 % 19 . See also
Gas-Mart USA , Inc . Creditor Trust Agreement , Exhibit B to Exhibit
8 to Citgo's Memorandum , Docket Entry No. 15-10,
66 of 97.
citgo's Memorandum , Docket Entry No . 15r p .
Plaintiff's Response, Docket Entry No . 27,
12 % 29.
15, p .
Plaintiff's Response, Docket Entry No . 27, p . 12 % 30.
obligations covered by the Surety Bond, and that on April
after the filing of the Surety Litigation), the Surety paid Citgo
$35,367.31 for Gas-Mart's post-vendor Agreement failure to pay for
On April 6, 2017, the court entered
On June 30, 2017, plaintiff initiated this action by filing
Docket Entry No.
alleging three causes of action:
automatic stay pursuant
avoidance of preferential transfer pursuant
Each of plaintiff's claim s are premised on allegations that after
the Petition Date Citgo engaged in actions that caused Gas-Mart's
reorganization to fail .2
z citgo 's Mem orandum, Docket Entry No . 15, p .
Plaintiff's Response, Docket Entry No. 27, p . 12 % 31. See also
Memorandum Opinion and Order, Exhibit 25 to Citgo's Memorandum ,
Docket Entry No. 15-27 (
Docket Entry No. 26 in Civil Action No. H16-0952).
2 citgo's Memorandum , Docket Entry No . 15, p . 13 % 332;
Plaintiff's Response, Docket Entry No. 27, p . 12 % 32 . See also
Final Judgment, Exhibit 10 to Citgo's Mem orandum , Docket Entry
No. 15-12 (
Docket Entry No. 31 in Civil Action No. H-16-0952).
Ocomplaint, Docket Entry No .
II . Motion to Dismiss Counts I and 11
Citgo argues that Count I for breach of contract and Count 11
for violation of the automatic stay
because plaintiff lacks standing to pursue these claims that were
not adequately preserved in Gas-Mart's confirmed plan as required
11 U .S .C .
1 12 3 .2
Alternatively, Citgo argues that p laintiff's stay violation claim
barred by laches, and that plaintiff lacks standing
contract claim because
Agreement pursuant to 11
5 365( and is thus deemed to have
breached the Agreement as
the Petition Date thereby relieving
Citgo of its duty to perform, ( the Surety paid the Surety Bond
securing Gas-Mart's performance thereby subrogating
any breach of contract claim that Gas-Mart may have had against
res judicata resulting from the Surety Litigation
between Citgo and the
Surety bars the plaintiff's breach
contract c1aim .2
citgo's Memorandum , Docket Entry No . 15, pp . 15-21 %% 44-57.
Citgo does not dispute that the avoidance of preferential transfer
c1aim asserted in Count III was adequately preserved . See id . at
20 n. 8 (
UCITGO notes that claims for preferences (
Count 111) are
identified and CITGO appears by name on a list of potential targets
for such claim s. CITGO does not assert that those claim s, to the
extent the Debtor held them , were not preserved . CITGO does not
admit any liability on such claims. This argument applies only to
Counts I and 11 for claims not preserved./).
22-29 %% 58-73 .
Standard of Review
Citgo 's argum ent that plaintiff lacks standing to pursue the
claims asserted in Counts
and 11 raises issues that the Fifth
Circuit has characterized as jurisdictional. See Dvnastv Oil and
Gas, LLC v . Citizens Bank (In re United Operatina , LLC), 540 F .3d
parties address the matter.'); Sricer v.
Lacuna Madre Oil & Gas II, L .L .C . (In re Texas Wvom in? Drillinl,
question of standing
assert post-confirmation claims based on
Although Citgo has moved for dismissal
under Rule l2 ( 6) for failure
may be granted , motions
state a claim for which relief
dismiss for lack of standing and,
lack jurisdiction are governed by Rule 12 (
See Rossco Holdinas, Inc . v . Mcconnell, Civil Action No . 4:14-cv-
374-0, 2014 WL 11460917,
Tex. July 23, 2014) (
jurisdiction, the court applies
standards for a motion
dismiss pursuant to Rule 12 ( (
b) 1)./), aff'd 613 Fed . App'x 302
per curiam ), cert. denied, 136
2015); Adler v. Walker ( re Gulf States Lona Term Acute Care of
Covinqton, L .L .C .I, Civil Action No . 11-1659, 2012 WL 710924,
standing based on confirmed plan 's failure
preserve claims for
per curiam ).
nLack of subject matter jurisdiction may be found in any one
of three instances:
the comp laint alone;
supplemented by undisputed
the comp laint
the complaint supplemented by undisputed facts plus the court's
resolution of disputed facts .' Ramminq v . United States, 281 F .3d
5th Cir. 2001) (
per curiam), cert. denied sub nom . Cloud
v. United States, 122 S.
2002). Rule l2 ( (1) challenges
' facia l' att ac ks
and nfactual' attacks.
See Paterson v . Weinberaer, 644 F .2d 52 1r
1981). A facial attack consists
a Rule 12 (
supporting evidence that challenges the
Id . A factual
attack challenges the existence of subject matter jurisdiction
pleadings, and matters outside the pleadings
such as testimony and affidavits may be considered .
rests with the plaintiff.
supporting evidence, Citgo's
factual attack .
existence of jurisdiction always
Ramminq , 281 F.3d at 161 .
not on the merits. Id.
Plan Documents Preserved the Breach of Contract Claim But
Not the Stav Violation Claim
parties do not dispute that the plan documents provided
creditor trust, appointment
plaintiff as trustee of the creditor trust authorized
causes of action, and transfer of
the estate assets - including
the creditor trust upon confirmation of the
Plan . In dispute is whether the plan documents adequately reserved
the plaintiff's breach
contract and stay violation claim s.
Asserting that nFifth Circuit cases m ake clear, non-avoidance
claim s are properly preserved pursuant to
plan materials, at a minimum , identify
1123 only when the
the nature of the claim s
the value of those claims E / f Citgo argues that the plan
satisfy these requirementsx ?
A sserting that 'the proper
of the Eighth
was adequater' ' plaintiff argues that Harstad
v. First American Bank, 39 F.3d 898 (
2 Id . at 18
at 18-20 %% 51-53 (
stay violation); 20-21 %% 54-57
breach of contract).
8plaintiff's Response, Docket Entry No .
% 56 .
controlling authority .zg Alternatively, plaintiff argues that 'even
citing Lovett v.
Cardinal Health , Inc . (In re Diabetes America , Inc .),
preserving claim s because the Fifth Circuit does not
identification of prospective defendants or the value of preserved
claim s.'l Attached
plaintiff's two motions for leave to submit
supplemental authority (
Docket Entry Nos. 38 and
that plaintiff argues show that Citgo has misstated the Fifth
Circuit's requirements :
A SARCO , LLC v . Montana Resources, Inc .r
S.D. Tex. 2013)7 Tepoer v. Keefe Bruvette & Woods,
No. 3:11-CV-2087-L-BK, 2012 WL 4119490 ( .D.TeX. Sept. 19,
2012)7 THINK3 Litiqation Trust v. Zuccarello (In re THINK3I,
B. 147 (
Bankr. W . Tex . 2015)7 and Nestlé Waters North America,
Inc . v. Mountain Glacier LLC (In re Mountain Glacier LLC),
has read and considered
2 . at %
3 . at %
3 . at 18-19 1% 58-60 .
case under the Bankruptcy Code creates a bankruptcy
interests of the debtor in property as of the commencement of the
U . C.
Compton v . Anderson (In re MPF Holdings US, LLC),
2012), vacatina and remanding,
TeX . 2011).
F .3d 449,
cases where the debtor assumes
debtor-in-possession status, the debtor typically has nmost of the
powers of a bankruptcy trustee, including the power
citing In re United
F.3d at 355 (
confirmation of the Chapter 11 plan , however, the bankruptcy estate
the estate ends unless the plan documents preserve
another party -
such as a liquidating or litigation trustee
U.S. 5 1123 ( 3).3
accordance with 11
See also In re United Operating,
('lf a debtor has not made an effective reservation,
debtor has no standing to pursue a claim that the estate owned
before it was dissolved .'
2This statute states : u . . . a plan may- . . . provide for .
the retention and enforcement by the debtor, by the trustee, or
by a representative of the estate appointed for such purpose, of
any . . . claim or interest E
belonging to the debtor or to the
estateq.' 11 U.S.C. 5 1123 ( (
1) Fifth Circuit Law Applies
Because Gas-Mart's bankruptcy case was filed and confirmed in
the Eighth Circuit, plaintiff argues that the applicable 1aw
F .3d at 898.3
Harstad, 39 F.3d at 898, reorganized debtors filed
confirmation action against
defendant 's motion
ban k seeking
dism iss upon concluding that
pursue preference claims because the confirmed
plan did not preserve the ability
affirm ed and the reorganized debtors appealed . In support of their
argument that they had standing because their plan preserved the
right to sue
preferential transfers, the reorganized debtors
cited the following excerpt from Article
of the confirm ed plan :
The Court will retain jurisdiction until this Plan has
been fully consummated for the following purposes: .
(Dqetermination of a11 causes of actions E
Debtors and any other party, including but not limited to
any right of Debtors to recover assets pursuant to the
provisions of the Bankruptcy Code .
debtors' argument that
language preserved their claim s, the Eighth Circuit explained that
A rticle X , captioned uContinuing Jurisdiction,' concerns
the ongoing jurisdiction of the Bankruptcy Court for
matters that arise after plan confirmation . Noting the
retention of the court's statutory jurisdiction to hear
post-confirmation matters is a far cry from reserving to
the debtors a right to bring post-confirmation claims to
H plaintiff's Response, Docket Entry No . 27 , p .
recover preferences paid by the debtors but never
proceedings. We hold that the above-quoted language is
not a retention of the claim at issue here-much less the
uspecific and unequivocal' retention that some courts
added). The court observed that
if the Harstads wished to retain the power to enforce
this claim pursuant to 5 1123 ( 3), it would have been
a simple matter to do so with straight-forward language
although not so easy to do without alerting their
creditors and the Bankruptcy Court to the possibility of
viable preference claims).
Id . The court explained :
We view 5 1123( 3) as, at least in part, a notice
Creditors have the right to know of any
potential causes of action that m ight enlarge the
estate-and that could be used to increase payment to the
creditors. Even if, as the Harstads claim , they gave
notice of such claim s by indicating in their disclosure
statement that the availab ility of such claim s was being
investigated, the creditors are entitled to know if the
debtors intend to pursue the preferences in post-
confirmation actions. Compliance with 5 1123( 3) gives
notice of that intent . Only then are creditors in a
position to seek a share of any such recoveries,
contingent though they may be, and to have the mechanics
of the preference-sharing spelled out in the plan .
Creditors are in no position to do so if they are not on
notice that the debtor retains the power to pursue
at 903 .
Because the Eighth Circuit held that the language
Harstad did not preserve the debtors' ability to pursue claims
instead , provided
jurisdiction of the bankruptcy court, that holding is inapposite as
Harstad suggests such
shows that the Eighth Circuit views 5 1123 (
notice provision requiring language that will alert creditors
Id . at
Plaintiff has not cited authority showing that the requirements
suggested by Harstad differ from the requirements applied by the
Fifth Circuit .
Because the sem inal Fifth Circuit case
reservation of rights must be nspecific and unequivocalr' and that
a udebtor must put its creditors on notice of any claim it wishes
to pursue after confirmationr' In re United Oreratina ,
355, the court concludes that resolution of the standing issue now
before the court would be the same regardless of whether the 1aw of
the Fifth Circuit is applied .
plaintiff failed to offer
concludes that the applicable 1aw
See Rossco Holdings,
which a question
that of the Fifth Circuit .
Fed . App'x
action filed in the Western District of Texas
assert post-confirmation claims
arose with respect to a bankruptcy case filed and confirmed in the
Ninth Circuit where plaintiff asserted that Ninth Circuit law
applied, but failed to brief the choice-of-law issue).
2) Fifth Circuit Law
The Fifth Circuit's requirements for preserving claims under
11 U. C. 5 1123 ( ( are explained
540 F .3d at 351,
In re United Oreratinc,
In re Texas Wvomin? Drillinc, 647 F .3d at
and ( In re MPF Holdings, 701 F.3d at 449.
In re United Oreratina involved
pursue pre-confirmation bankruptcy and common-law
claim s for fraud , breach of fiduciary duty, and negligence against
a court-appointed operator
the debtor's oi1 and gas properties
and the lender that sought the operator 's appointment .
The plan contained
claim s arising under the Bankruptcy Code , and
claim s arising under identified sections
Bankruptcy Code . The plan did not , however, say anything about the
common law claim s that the creditors' committee filed against the
operator and the lender . The Fifth Circuit held that
nqeither the Plan's blanket reservation of uany and a1l
claims' arising under the Code , nor its specific
reservation of other types of claim s under various Code
provisions are sufficient to preserve the common-law
plaintiffq now brings for, ânter alia, fraud,
breach of fiduciary duty, and negligence .
Id. at 356. The court explained that ulfqor a debtor to preserve
a claim, the plan must expressly retain the right to pursue such
actions,' id. at 355 (
citation omitted), that ' tlhe reservation
must be '
specific and unequivocal,'' id. (
quoting Harstad, 39 F.3d
902), and that ' iqf
debtor has no standing to pursue a claim that
estate owned before
was dissolved .'
Id . The court exp lained
this rule as na logical consequence of the nature of a bankruptcy,
liabilities w ithin
limited time,'' id w
' pqroper notice allows creditors to determine whether a proposed
plan resolves m atters satisfactorily before they
In re Texas Wvomin? Drilling involved a reorganized debtor who
filed post-confirmation avoidance actions against the debtor's
former shareholders seeking
debtor was insolvent .
recover dividends paid while
F .3d at
The plan provided
debtor to retain nEstate Actions,' defined to include nclaims under
the Bankruptcy Code .'
The disclosure statement
provided more specifically that nEstate Actions' included nvarious
potential avoidable transfersr' id . , and also included
outlining 'various claim s and causes of action the Debtor
Reorganized Debtor may pursue on behalf
the Debtor's Estate .r'
The chart identified as a potential defendant, uAg
pre-petition shareholders of
Debtor' who might be sued
The defendants argued that the preservation language
plan documents failed the In re United Operatinq uspecific and
defendants individually . A fter first considering and deciding
claim had been adequately preserved, id .
Fifth Circuit held that
standing to pursue the avoidance actions because the plan documents
adequately preserved those claims.
Id . at 552 . The Fifth Circuit
explained that the plan documents were
unequivocal' to preserve the avoidance actions because
( nlike the plan in In re United O
contained only a blanket reservation of uany and a11
claim s,' TWD'S plan and disclosure statem ent revealed the
existence of the Avoidance A ctions, the possible amount
of recovery to which they would lead , the basis for the
namely, pre-petition dividends and transfers to
equity interest holders), and that the reorganized debtor
intended to pursue the claim s . The terms of TWD'S plan
and disclosure statement are far more specific than those
in Tn re United Op erating .
In re MFP Holdincs involved
litigation trustee seeking
pursue avoidance actions against vendors with whom the debtor had
the vendors sought
dismissal either because the claims against them had been released
because recovery was barred by the debtor's assumption
contracts during bankruptcy, the bankruptcy court sua soonte raised
nspecific and unequivocal' standard for preserving claims .
The bankruptcy court ultimately
dism issed the litigation trustee 's claim s for lack
conclusion that an effective preservation of claim s must satisfy
three requirements :
individually identify the parties
state that each party will be sued, and
legal basis for the suit.
B. at 744-45)
Id. at 452 (
The bankruptcy court held that the plan was
sufficiently unequivocal because it only reserved avoidance actions
udo exist and will be prosecuted,' id. (
citing 443 B.R. at 749-50),
and because the plan contained ambiguous language that could be
have released som e
the defendants being sued .
B.R. at 750-55). On appeal the Fifth Circuit vacated
the bankruptcy court's opinion explaining that the
preserving claim s identified by
court were not mandated
In re United Oreratina .
Id . at 455 .
Observing that traditional rules of contract interpretation could
Circuit remanded the case
plan documents, the Fifth
determination of whether individual
defendants were ureleased in connection with or under the Plan or
by prior order of the Court .' Id . at 457 .
re United Operatinq, In
Drillinc, and Jn re MRF Holdings and other Fifth Circuit opinions
those three cases
1123 only when the plan materials,
the nature of the claims reserved,
of potential defendants,
iii) the value
But none of the opinions that Citgo cites has held either that the
standard for effectively preserving non-avoidance claim s differs
from the standard for preserving avoidance claims, or that
3 . at 18 % 50. See also Citgo Petroleum Corporation's Reply
in Support of Motion to Dism iss or, in the A lternative, for Summary
Judgment as to Counts I and II, and for Summary Judgment as to
Count III (
'), Docket Entry No. 34, p . 13 % 18 ('
its Motion , CITGO describes- from seven different Fifth Circuit
opinions issued between 2008 and 2015-how the nspecific and
unequivocal' standard is more demanding for non-avoâdance claims
than avoidance claims.
See, e.g.r Motion %% 45-50./
/). The other
opinions that Citgo cites are : In re Gulf States, 614 F. App 'x at
holding that ul
tqhe Plan's reservation of 'E
alny and a11 other
claims and causes of action which may have been asserted by the
Debtor prior to the Effective Date' is exactly the sort of blanket
reservation that is insufficient to preserve the debtor's
'); Woolev v. Havnes & Boone, L. .
L P. (
In re SI
Restructurinc Inc.), 714 F.3d 860, 865 (
5th Cir. 2013) (
that claims for breaches of fiduciary duties were not effectively
preserved because nE
njeither the Plan nor the disclosure statement
references specific state law claim s for fraud, breach of fiduciary
duty, or any other particular cause of action . Instead , the Plan
simply refers to a11 causes of action, known or unknown. . . g
a blanket reservation is not
sufficient to put
notice./); Rossco Holdinls, 613 F. App'x at 3O8 (
plaintiffs lacked standing to pursue m alpractice and negligent
misrepresentation claim s because they were not identified in the
confirmed plans); and The National Benevolent Association of the
Christian Church (Discirles of Christ) v . Weil, Gotshal & Manaes,
LLP, 333 F. App'x 822, 827-29 (
5th Cir. 2009) (
per curiam) (
that ambiguity in plan language precluded finding that p lan
specifically and unequivocally preserved claim s for pre-petition
nspecific and unequivocal' standard requires something more than
the retention of claim s.
See In re Texas Wvominc Drillinc , 647
United Op erating focused
uWe observe that
exclusively on the retention
never held that
intended defendants must be named in the p lan .
355-56, the Fifth
Circuit cited In re Ice Cream Liquidation ,
B .R .
reservation of Mpreference claims' was
In re United Orerating,
sufficient to preserve
preferential transfers even though neither the plan nor
transferees, or categories of transfers or transferees involved in
be brought post-confirmation, 319 B .R . at 337-38,
sufficient to preserve claims for turnover .
explained that the plan identified specific
sections of the Ban kruptcy Code under which preference claims would
be brought , but that neither the plan nor the disclosure statement
mentioned turnovers or 5 542 (
governs turnovers .
section of the Bankruptcy Code
Resources Litication Trust v . Burr (In re Crescent Resources, LLC ),
R. 423, 433 (
Bankr. W.D. Tex . 2011) (
concluding that In re
Ice Cream Liguidation stands
nthe proposition that listing
causes of action by code section is A
specific and unequivocal./').
While the Fifth circuit has held that plan documents that identify
claim s satisfy
unequivocal' standard , see In re Texas Wvomin? Drillinq, 647 F .3d
at 552, the Fifth Circuit has not held, as Citgo contends,
always required to satisfy that standard .
Instead, the Fifth Circuit has emphasized that ' tqhough the degree
of specificity involved
plan 's reservation of claim s
often vary, the reservation must ,
put Acreditors on notice of
m inimum , be specific enough
the debtorq wishes
pursue after confirmation .r' In re SI Restructurinq Inc ., 714 F .3d
at 864 (
quoting In re United Oreratina, 540 F.3d at 355). See also
In re Crescent Resources,
recognizing that because
nthere has been no binding case
define definitively what
court meant by E
uspecific and unequivocal'
attempted to determ ine if a reorganized debtor retained standing on
a case-by-case basisv).
Circuit's analyses of
A fter carefully
reviewing the Fifth
nspecific and unequivocal' standard, one
bankruptcy observed that
qquestions remain. Especially important for this case
is whether categorical identification of prospective
defendants is required .
Another unanswered question is how specifically the
retention language must describe the basis of recovery .
In re Diabetes, 485 B .R . at 346 .
80th of these questions are
the action now before the court .
Plaintiff's breach of contract claim alleges that
The Agreement entered into by and between Gas-Mart
and Citgo was a valid and enforceable contract .
Citgo materially breached the Agreem ent in several
respects, including, but not lim ited
by failing to m eet its obligation to supply
fuel to Gas-Mart for nearly two weeks from the
time that Gas-Mart filed for bankruptcy ,
desp ite the fact that it was fully secured
against any potential default by Gas-Mart ;
restrictions on fuel allocation that caused
Gas-Mart to run out of fuel on multiple
occasions throughout its bankruptcy;
by failing and refusing to honor its ten-day
credit terms set forth in the Agreement
throughout Gas-Mart 's bankruptcy;
by failing and refusing to provide the
contractual 1% rebate to Gas-Mart for cash in
advance purchases of fuel;
by failing to properly credit and/or setoff
Gas-Mart's account for purchases made with
credit cards; and
by continuing to keep Gas-Mart 's credit card
receipts in breach of its agreement to resume
supp lying fuel in exchange for being permitted
to keep said receipts .3s
Plaintiff's stay violation claim alleges that by engaging in these
and other actions Citgo violated the automatic stay .3
Ocomplaint , Docket Entry No . 1, pp . 10-11 %% 51-52.
id. at p. 4 % 17 (
defining uAgreement' as the September 10, 2013,
Marketer Franchise Agreement).
3 . at
(1) The Plan Documents
Gas-Mart 's confirmed Plan contains a paragraph titled uVesting
of Assets' that states :
including, without limitation , all Causes of Action)
will be transferred to and vest in the Creditor Trust and
be deemed contributed thereto, subject to the terms of
the Plan and Confirmation Order . M l Causes of Action
shall survive confim ation and the co= encement of
prosecution of Cau ses of A ction shall not be barred or
limited by any res judicata or estoppel , whether
judicial, equitable or otherwise, based upon, ïnter alia,
confirmation of the Plan or the extent to which the Plan,
Liabilities, or Statements of Financial Af fairs identify
any Causes of Action . The Creditor Tru stee 's right to
co= ence and prosecute Causes of Action (
without limitation , Avoidance Actions) shall not be
e ridged or materially altered in any manner by reasons
of confim ation of the Plan . Al1 property held in the
Creditor Trust for distribution pursuant to the Plan will
be held solely in trust for the holders of Allowed
Professional Fee Claims, Allowed Other Adm inistrative
Expense Claims, A llowed Priority Tax Claims, Allowed
Class IA-IE Claims , Allowed Class 2 .1A -2 .IL Claims and
A llowed Class 3A-3E Claip s and will not be deemed
P roperty of the Debtors .
nCauses of Action' to mean :
' Aqll claims and causes of action of the
as of the Effective Date , whether arising under any contract , tort ,
the Bankruptcy Code,
MModified First Amended Plan of Liquidation Dated July 21,
2016, Article VII, 5 7 .1.1, Exhibit A to Exhibit 8 to Citgo's
Memorandum, Docket Entry No. 15-10, pp . 48-49 of 97 (
8Id . at Article 1, 5 1 .1.15, p .
The Disclosure Statement lists 'Causes of Action' am ong assets
Plan on the
A greem ent :
be used to fund payments to be made under the
Effective Date or transferred to the Creditor
. to fund distributions to Creditors in
with the Plan and the Creditor Trust
Causes of Action . The Committee believes the
Creditor Trustee m ay be able to pursue Causes of Action
against several entities, including, without limitation,
those set forth on Exhibit B hereto and the list of
transfers disclosed in the Debtors' Statements of
Financial A ffairs. The categories of potential Causes of
Action include Avoidance Actions, other Claims against
Insiders, and E
oqther Claims. Each of these categories
is discussed in more detail below .
Avoidance Actions .
Other Ciaims Against Insiders .
Other Claims . The Committee believes the
Creditor Trustee may be able to assert other Causes of
Action belonging to the Debtors and their Estates . Such
Causes of g
Alction would include, without limitation,
claim s for breach of contract, tort , the Bankrup tcy Code,
or other federal or state law .3
potential defendants included in Exhib it B
Disclosure Statement includes the defendant in this action , Citgo .t
MDisclosure Statement, Ariicle VI. .2, Exhibit
Memorandum , Docket Entry No . 15-9, pp . 23-24 of 117 .
4 Exhibit B
115 of 117 .
Disclosure Statement, Docket Entry No .
2) The Plan Documents Preserve the Contract Claim
The court concludes that the plan documents are sufficiently
uspecific and unequivocal'
preserve to the plaintiff as trustee
the Gas-Mart Creditor Trust the right
pursue breach of
contract claims against Citgo because the p lan provides that
' oqn the Effective Date, the Creditor Trust Assets (
without limitation, al1 Causes of Action)
and vest in the Creditor Trustz '
' aqll Causes of Action shall
survive confirmation and the commencement of prosecution of Causes
of Action shall
be barred or limited by any res judâcata
tqhe Creditor Trustee's right
Avoidance Actions) shall not be abridged or materially altered in
any m anner by reasons
Plan ,' because
Plan defines uCauses of Action' to mean: ' A qII claims and causes
the Debtors and their Estates
Date, whether arising under any contract ,
of the Effective
*;' and because
Disclosure Statement not only lists '
'Causes of Action' among assets
be transferred to the Creditor Trust
creditors, but also identifies three
action, one of which
categories of causes
uOther Claim s' defined to include nCauses
b reaeh of contract r'
Exhibit B) identifying potential defendants, including Citgo .
plan documents are uspecific and unequivocal' because
recovery, i.e ., breach of contract , and
identify the defendant by name .
See In re M PF Holdinas, 701 F.3d
at 457 (
uln addition to
referenced in the Reorganization Plan identified each defendant
Accordingly, we hold that the reservation language
Reorganization Plan was sufficiently specific and unequivocal under
Citgo argues that the plan documents are
preserve plaintiff's breach of contract claim because ' pllaintiff
was preserved without identifying the categories
Ci4 im .X1
Citgo has not, however, cited any case in which a court has even
considered language purporting
reserve claim s for breach
contract much less a case holding that preservation
claim requires identification of categories of potential defendants
Moreover, in response to Citgo's
argument plaintiff has submitted supplemental authority including
two cases from courts
this circuit that have considered
rejected analogous arguments with respect
contract claims, i .e ., Tepoer, 2012
and In re
THINK3, 529 B .R . at
Ocitgo's Reply, Doeket Entry No . 34,
% 18 .
describing the cases Citgo cites).
4119490, at *4r
court held that uthe
Plan's categorical reference to and reservation of contract claims
reserve Plaintiff's contract
identify any potential
identify the value of any preserved claims . Id . at
In re Texas Wvom in? Drilling, 647 F.3d
nTn re United Op erating focused exclusively on the retention
of claims .
*#' .( * a '
court reasoned that 'neither Tn re
Texas Wyoming Drilling nor Tn re United Op erating requires that
specific prospective defendant, potential amount
the claim basis be included
plan or disclosure statement
In In re TH INK3 the court held the nspecific
claims .' Id . at
and unequivocal' standard satisfied because the plan uspecifically
contract and debt) and
specifically named the defendant .'
plan documents at issue specifically identify
contract claim s as a type of claim being reserved, and specifically
potential defendant they are specific enough to
creditors on notice
the tru stee's intent
confirmation claims for breach of contract.
The court concludes
plan documents satisfy the Fifth Circuit 's
uspecific and unequivocal' standard for preserving contract claim s.
3) The Plan Documents Do Not Preserve the Stay
the Disclosure Statement contain any reference
Bankruptcy Code that
governs the automatic stay . In In re United OperatinG, 540 F .3d at
Fifth Circuit cited with
Liauidation, 319 B .R . at
documents that identified specific sections of the Bankruptcy Code
sufficient to preserve preference claim s, but that because the plan
documents failed to reference turnover claims or the section of
Bankruptcy Code that governed such claims, turnover claim s had not
been preserved .
Because the plan documents
reference stay violations
of the Bankruptcy Code, they
preserving stay violation claims .
consideration of Section 1123
notice r/o p laintiff argues that
3plaintiff's Response, Docket Entry No . 27, p .
nevertheless be denied because ' dlefendant had actual notice and
knowledge of the claim E)
Plaintiff argues that
correspondence of the precise claims that are the subject
of Counts I and II. On July 14, 2015, approximately two
weeks after Plaintiff's Petition Date, Plaintiff's
counsel informed Defendant's counsel that nGas-Mart has
instructed my firm to start preparing papers to sue CITGO
for violating the automatic stay and its executory
'. A copy of this email is attached as Exhibit
4 . Furthermore, Defendant is not prejudiced in any way,
as Defendant explicitly preserved its defenses against
Gas-Mart in anticipation of this litigation in a postpetition Vendor Agreement . Had Defendant so desired,
with its knowledge of the potential claims against it, it
could have inserted a release in the post-petition Vendor
Agreement to obviate any liability .
Thus, because Defendant
notice of the claim s it argues
pursuant to Section 1123, its
ground should be denied . The
had actual knowledge and
were improperly preserved
Motion to Dism iss on this
prim ary considerations of
Section 1123, such as prejudice, surprise, and lack of
notice are completely lacking in the present situation .o
Citgo replies that plaintiff's argument uinvites the E
ignore the Fifth Circuit case 1aw interpreting 5 1123
ingq a new test .' 6 Citgo also argues that the email
plaintiff subm its as nExhibit A .
is 50th inadmissible and
irrelevant .'4 Citgo argues that Exhibit A is inadmissible parole
4 . at %% 62-63.
citgo 's Reply , Docket Entry No .
4 Id . at 10 % l2.
pp . 17-18 %
st atem en t
ned by contract principlesz8 and
evidences only that the Debtor believed that
potential claim against CITGO one year prior
not whether that claim was preserved
the Plan and Disclosure
Statement such that Plaintiff has standing to bring it .'49
Citgo's actual knowledge of
as a matter of law, not relevant
plaintiff has standing
pursue that claim because standing
the sufficiency of the retention language in the p lan
Although the Fifth Circuit
creditors as an important policy concern behind the '
unequivocal' standard articulated
In re United Oreratina ,
F.3d at 355, plaintiff has not cited any case in which the Fifth
Circuit has considered actual notice
specific creditor as
relevant to whether claim s have been sufficiently preserved
post-confirmation prosecution .
Instead , 'the notice to creditors
that the E
Fifthq Circuit and other courts have considered critical
this regard is the general notice
a;; creditors, not merely
the actual notice of the defendant in the post-confirmation suit .'
Texas Wyom inq Drillina,
See also In re
'The purpose of the rule
put 'creditors on notice of any claim E
the debtor) wishes
pursue after confirmation' and enable
Acreditors to determine
whether a proposed plan resolves matters satisfactorily before they
vote to approve it.'') (
' quoting In re United Operatina,
Asarco the bankruptcy court rejected
Operatin? and its progeny, which hold that blanket reservations of
post-confirmation , apply even when actual notice
creditors have been paid in fu1l .' 514 B .R . at 192 .
Plaintiff Lacks Standin? to Pursue the Claim for PostPetition Breaches of a Renected Contract
Citgo argues that plaintiff is barred from pursuing the breach
of contract claim because Gas-Mart elected
reject the Citgo
rejection constitutes a material breach deemed to have occurred the
oplaintiff's Complaint alleges breach of the September 1O,
2013, Agreement. See Docket Entry No. 1, p. 10 % 51 (
tqhe Agreement entered into by and between Gas-Mart and Citgo was
a valid and enforceable contract.'
'), % 52 (
alleging that 'Citgo
m aterially breached the Agreement in several respects, including,
but not limited to . . .r' and p. 4 % 17 (
defining the term
the Complaint .
Plaintiff's Response, Docket Entry No . 27, p . 13 % 46 (
that uthe Vendor Agreement was signed post-petition by Citgo , which
independently creates the litigation claims against Citgo'). See
also Citgo's Reply, Docket Entry No. 34, pp. 20-21 % 30 (
against any contention either that the Vendor Agreement is a
standalone agreement or that the Complaint alleges breach of the
day before the Petition Date ,s and that
of contract 1aw
fundam ental principle
that when one party
material breach of that contract, the other party is discharged
excused from further perform ance ,/b Citgo argues that Gas-Mart's
prior material breach bars plaintiff's contract claim because
alleged breaches a11 occurred after the Petition Date .5
W ithout disputing that the breaches alleged in the Complaint
occurred after the Petition Date , plaintiff responds that
: 365 ( )
pending Gas-Mart's decision to reject the contractx 4 Citing United
States of America on Behalf of the United States Postal Service v .
Dewev Freiaht Svstem , Inc w
plaintiff argues that nthe non-debtor counter party to an executory
contract is obligated to continue perform ing its obligations under
the contract pending
ultimate assumption, assignment ,
rejection of that contract by the debtor.'o Plaintiff argues that
dquring this time , Defendant was required to continue
performing its contractual obligations.
argument would effectively eliminate this requirement,
s citgo's Memorandum , Docket Entry No.
p . 26 %
5 (d . a t
5 . at 26-27 :%
p . 10 %% 51-52 .
See also Complaint, Docket Entry
pp . 21-23, %%
5 . at 22 % 65
relieve non-debtors of their contractual obligations
before the contract was ultimately rejected, and alter
the substantive rights of the parties, a1l of which would
be contrary to the 1awX 6
Without disputing that non-debtor counter parties to executory
contracts are obligated to continue performing pending a debtor's
ultimate assumption or rejection of the contractr Citgo replies:
Plaintiff cites no case allowing a plaintiff to sue on a
rejected contract for alleged breaches after the petition
Plaintiff provides no authority Einq support of
the proposition that the nfirst to breach rule' has no
g), or, more
succinctly, that nbreach' does not m ean nbreach .rs7
After carefully reviewing 5 365 and Fifth Circuit 1aw applying
5 365, the court concludes that while b0th parties have correctly
cited cases applying 5
neither party has fully demonstrated
how that 1aw applies to the facts of this case .
For the reasons
stated below , the court concludes that Gas-Mart's Rejection of the
Citgo Agreement means that plaintiff lacks standing
Ban kruptcy Code provides that
trustee, subject to the court's approval, may assume or reject any
executory contract or unexpired lease of the debtor .'
$ 365 ( ).
term Mexecutory contract'
5 Id . at 22-23 % 66.
s citgo's Reply, Docket Entry No .
% 28 .
the Fifth Circuit has recognized that Man agreement is
executory if at the time of the bankruptcy filing, the failure of
comp lete performance would constitute a material
breach of the contract, thereby excusing the performance of the
other party .' Phoenix Exploration, Inc . v . Yaquinto (In re Murexco
Petroleum, Inc.), 15 F.3d 60, 62-63 (
5th Cir. 1994) (
per curiam ).
See also id . at
San#ru tcy; Part
Countryman , Sxecutory
57 Minn .
Rev. 439, 458-62 (
Sankrup tcy ; Part
57 Minn .
1974).')) National Labor Relations Board v. Bildisco and Bildisco,
1188, 1194 &
' Tlhe legislative history
a) indicates that Congress intended the term to mean a
'on which performance is due to some extent on b0th
H .R .ReP .
95-989, p . 58 ( 77).').
The decision whether to assume or reject an executory contract
bankruptcy estate . See Mirant Corp . v . Potom ac Electric Power Co .
( re Mirant Corp.), 378 F.3d 511, 524
assume the executory contract ,
takes on the burdens associated with the contract , agreeing to cure
any outstanding defaults, and comm itting to perform on
U.S. f 365 (
See Texas Health snterrrises,
Inc. v . Lytle Nursing Home (In re Texas Hea1th Enterorises , Inc .),
App'x 122, 126 (
5th Cir. 2003). Once an executory contract
5 365( 5 If the estate elects to reject the contract, the act of
rejection is deemed to constitute a breach occurring the day before
the filing of the bankruptcy petition,
the non-debtor receives
U.S. 5 365 ( (
g) 1),5 and
pre-petition claim for damages arising
58 pertinent part the statute provides:
the trustee m ay assign such contract or lease
under paragraph ( of this subsection.
The trustee may assign an executory contract
unexpired lease of the debtor only if--
the trustee assumes such contract or lease in
section ; and
adequate assurance of future performance by
the assignee of such contract or lease is
provided, whether or not there has been a
default in such contract or lease .
11 U.S.C. 5 365(
591n relevant part the statute provides :
g) . . . the rejection of an executory contract
unexpired lease of the debtor constitutes a breach
such contract or lease
if such contract or lease has not been assumed
under this section or under a plan confirmed
under chapter 9, 11, 12, or 13 of this title,
immediately before the date of the filing of
11 U. C. 5 365 (
therefrom measured ( the usual case) by the terms of the contract
5O2 ( 1). 0
affirmative declaration that
Rejection is an
Rejection does not terminate the contract,
the contract outside of the bankruptcy
administration . Eastover Bank for Savinqs v . Sowashee Venture (In
re Austin Development Co.), 19 F.3d 1077, 1082-83 (
5th Cir.), cert.
denied sub nom . Sowashee Venture v . EB , Inc .,
In re Austin Development involved a lease on non-residential
issue was whether the debtor's failure to timely
assume or reject the lease which resulted in
lease thereby extinguishing
parties, e .a ., parties who had taken a sublease from the debtor or
a security interest in the debtor's lease interest .
Id . at 1080 .
statutory antecedents, and policy
0In relevant part the statute provides :
A claim arising from the rejection, under section 365 of
this title or under a plan under chapter 9, 11, 12, or 13
of this title, of an executory contract or unexpired
lease of the debtor that has not been assumed shall be
determined, and shall be allowed under subsection (
b), or ( of this section or disallowed under section
( or ( of this section, the same as if such claim had
arisen before the date of the filing of the petition .
11 U.S.C. f 502 ( 1).
considerations, the Fifth Circuit concluded that 'rejection, does
termination of that lease, or, consequently , an
implied forfeiture of the rights
reaching this conclusion the Fifth Circuit
E 365 derives from 5 70( of the former Bankruptcy
Act, a provision that broadly codified the common law
doctrine that allowed the trustee either to assume and
perform the debtor's leases or executory contracts or to
nreject' them if they were economically burdensome to the
estate . See
T . Andrew ,
Contracts ïn Bankru tcy; Understanding 'Rejectionr' 59 U
of Colo. L . Rev. 845, 874-81 and n. 136 (
court has held that the deemed rejection of a lease under
5 70( did not terminate the lease but merely placed the
trustee's obligation to perform under the leasehold
outside of the bankruptcy administration without
destroying the leasehold estate . In re Garfinkle, 577
F.2d 901, 904 (
5th Cir. 1978).
F .3d at 1081.
Fifth Circuit also reasoned that
the terms rejection, breach and termination are used
differently, but not inconsistently or interchangeably .
Throughout 5 365, rejection refers to the debtor's
decision not to assume a burdensome lease or executory
Section 365( states that rejection of a
subsections ( 2) and ( 2). Three circuits, including
this one, have held that this language does not mean that
the executory contract or lease has been term inated, but
only that a breach has been deemed to occur .
Continental Airlines, 981 F.
2d 1450, 1459 (
uto assert that a contract effectively does not
exist as of the date of rejection is inconsistent with
deeming the same contract breached/
The Fifth Circuit exp lained that
tlhe decision to reject is thus correctly viewed only as
a 'power to breach ' the executory contract or lease . A s
one commentator put it,
rejecting is the contract or lease asset,
which conceivably could carry continuing
obligations with it into the estate on an
prevents the estate from unadvisedly stepping
into such liabilities . The liabilities are
not repudiated; to the contrary, as the
rejection-as-breach doctrine is designed to
remain in-tact after rejection and give the
non-debtor party a claim in the distribution
of the estate .
nthe authority to reject an executory
reorganization, because rejection can release the debtor's estate
Between the date
ban kruptcy petition
executory contract is assumed
against the debtor.
exist, enforceable by
Dewey Freight ,
F .3d at 624 . See also In re
Gunter Hotel Associates, 96 B.R. 696, 7O0 (
(' executory contract under Chapter 11 is not enforceable against
the debtor party, but
debtor's assumption or
In re Mirant Coro w
enforceable against the nondebtor party
3O3 B.R. 319, 328 (
Bankr. N .D. Tex. 2003)
debtor has rights under the contract which are
the estate and so are protected by the automatic stay
from actions of other parties');
Chick Smith Ford, Inc. v. Ford
Motor Credit Co . (In re Chick Sm ith Ford , Inc.), 46
Bankr. M .
D. Fla. 1985) ('g
' uqntil the contract
compel specific performance and require the E
creditorq to abide
the provisions of the contractEq.').
b) Application of the Law to the Facts
Neither party disputes that the Agreement plaintiff alleges
Citgo breached was an executory contract, that Citgo's alleged
entered a Rejection Order pursuant
Mart's Executory Contracts, including the Agreement w ith Citgo,
were rejected as of March 10, 2016. Pursuant to
and the Fifth Circuit's reasoning in In re Austin Develorment,
F.3d at 1077, the court concludes that Gas-Mart's rejection of the
constituted a material breach that triggered
dischargeable, unsecured , pre-petition claim by Citgo against the
estate effective immediately before Gas-Mart's bankruptcy, and
perform ance obligations .
See id . at 1081-84 .
General Contractors, Incw 267 B.R. 773,
See also In re CVA
Bankr. W.D. Tex.
nrejection has an important
appropriately narrow function:
relieves the estate and nondebtor parties from future performance
dischargeable, unsecured, pre-petition claim against the estate'
Rejection did not cut off the right of Gas-Mart's estate
its successor-in-interest to pursue claims based on pre-petition
breaches of the Agreement.
Tavlor (In re Tavlor ),
See e .a., Delichtful Music Ltd . v .
( Cir. 1990)
extent that money is due the debtor for pre-petition services under
a personal services contract , the debtor's claim for those sums is
trustee/debtor-in-possession . And this is so regardless of whether
otherwise, the issue
rejects the contract.
rejection relates only
those aspects of the contract which remained unfulfilled as of the
date the petition was fi1ed.'); Williams v. Tomer (In re Tomer),
128 B. 746, 756 (
Bankr. S.D. 111. 1991) (
nthe executed portions of
the contracts remain intact , and property rights acquired under the
contracts prior to filing became property of the estate despite the
trustee's rejection of unperformed obligations of the contracts),
aff'd, 147 B.R. 461 (
S.D. 111. 1992).
claim asserted in this action
But the breach of contract
not for pre-petition breaches .
While plaintiff correctly cites Dewev Freiqht for holding that
proceeding, but before
executory contracts are assumed or rejected under
existence, enforceabie by tAe deb tor
against the debtorr' 31 F.3d at 624, relief for post-petition, pre'
available from the bankruptcy court by an
order requiring specific performance or an injunction enforcing the
automatic stay .
See In re Mirant Corp w
at 328; In re
Chick Sm ith Ford, 46 B .R . at 519. See also In re Mirant Corr w 44O
affirming bankruptcy court's
orders directing non-debtor parties to comply with the automatic
stay after holding that non-debtor's unilateral termination of an
executory contract before debtor had elected
Before the Citgo
Agreement was rejected, remedies for the breaches about which the
plaintiff complains were thus available
bankruptcy court in the form of orders for specific performance or
the automatic stay .
the extent that Citgo 's
stated in 5 II.
B.1.( 3), above, the court has already concluded
that plaintiff lacks standing
pursue this claim because
ability to do so was not preserved in the plan documents .
Plaintiff has not cited and
an affirmative declaration by
creditor tru stee p laintiff
claims for post-petition breaches
Bec au se
debtor that the
a pre-petition contract
made by the debtor, Gas-Mart's rejection of the Citgo Agreement not
obligations, but also relieved the estate of
claims for post-petition breaches thereof.
ability to assert
5 365 ( executory contracts must be assumed by the debtor before
they can be assigned. Gas-Mart's rejection of the Citgo Agreement
therefore precluded the post-petition breaches from becom ing assets
of Gas-Mart's estate that could be assigned and transferred to the
creditor trust .
Accordingly , the court concludes that plaintiff
lacks standing to pursue the breach of contract claim asserted
this action .
Plaintiff 's Request for a Oral A rgument
Plaintiff has requested oral argum ent on Citgo's motion
Docket Entry No. 37). The Court has discretion to grant
or deny a request for oral argument . See Rule 7.5A, Local Rules of
the United States District Court for the Southern District of Texas
party views oral argument as helpful
motion or response may include a request for
the parties will be notified by the clerk.').
the Court, the
If it is granted ,
Because the court
has been able to resolve Citgo's motion to dismiss on the pleadings
and briefs without the need for oral argument, plaintiff's request
for oral argument will be denied .
Conclusions : Plaintiff Lacks Standing for Counts I and 11
For the reas6ns stated in
B.1 ( 3), above, the court
Count 11 because the plan documents
not preserve the ability
pursue such claims post-confirmation .
the reasons stated
II.B.1( 2), above,
concludes that the plan documents did preserve the ability
contract claims post-confirmation ,
reasons stated in 5 II.B .
2, above, the court concludes that
plaintiff lacks standing
pursue the breach of contract claim
because that claim alleges post-petition
Agreement that Gas-Mart rejected pursuant
365. Accordingly , Citgo's motion to dismiss Counts I and
for lack of standing will be granted and the plaintiff's claims
contract and violation of the automatic stay
jurisdiction . Although Citgo also argues, in the alternative, that
plaintiff's breach of contract claim is subject
on res judicata and principles of subrogation, and that plaintiff's
stay violation claim is subject
because the court concludes that these claims should be dismissed
lack of subject matter
111 . Motion for Summarv Judqment on Count III
transfer, a payment of $68,185.69 that Gas-Mart made to Citgo on or
about June 9, 2015 .61 Citgo denies that this payment qualifies as
a preferential transfer, but for purposes
Citgo assumes that
the pending motion
prima facie elements
transfer claim have been established .
and asserting that after Gas-Mart made the payment
issue, Citgo provided almost $900,000.00 in new fuel deliveries
Gas-Mart that rem ained unpaid as of the Petition Date, Citgo argues
entitled to summary judgment on this claim based on the
SUYSOCUPDV DeW Vxiue Yefense .6
Standard of Review
Summary judgment is authorized if the movant establishes that
no genuine dispute about any material fact and the
judgment. Fed. R. Civ .
material facts are
reasonable jury could return
Anderson v . Libertv Lobbv , Inc w
the nonmoving party .
2505, 2511 (
party moving for summary judgment umust A
demonstrate the absence of
a genuine issue of material fact,' but need not negate the elements
Gcomp laint, Docket Entry No .
pp . 13-14 %% 64-73 .
6 citgo's Memorandum , Docket Entry No .
29 %% 74-75 .
the nonmovant's case .'
Little v . Liauid Air Corr w
1994) ( banc), (
quoting Celotex Corp . v .
2548, 2553-54 (1986)).
meets this burden, Rule 56( requires the nonmovant
the pleadings and show by affidavits, depositions, answers
interrogatories, adm issions on file, or other admissible evidence
that specific facts exist over which there
citing Celotex, 106 S.
favor of the nonmoving party, and
weigh the evidence .'
Sanderson Plumbinc Products Inc.,
Reeves v .
2097, 2110 (
Factual controversies are to be resolved in favor of the nonmovant,
50th parties have submitted evidence
contradictory facts .' Little , 37 F .3d at 1075.
Applicab le Law
Section 547( ( provides in pertinent part that
The Trustee m ay
4) to ob for the benefit of a creditor, to the
extent that , after such transfer, such creditor gave new
value to or for the benefit of the debtor(
A) not secured by an otherwise unavoidable
security interest ; and
on account of which new value the debtor
did not make an otherwise unavoidable
transfer to or for the benefit of such
11 U.S. 5 547( 4). In pertinent part 5 547 ( 2) defines nnew
value' to mean nm oney or money 's worth in goods, services, or new
.' 11 U.S. 5 547 ( 2).
Citing Leidenheimer Bakinc
Co ., LLC v . Sharr (In re SGSM Acauisition Co ., LLC ), 439 F .3d 233,
2006), Citgo argues that this statutory language
creates three elem ents that must be proven in order to
assert the Msubsequent' new value defense:
creditor must have extended new value to the debtor or on
debtor's behalf after receiving the preference; ( the
new value must be unsecured; and ( the new value must
remain unpaid after its transfer.6
Citgo argues that
a11 three elements are met . The alleged preferential
transfer was m ade on June 9, 2015 .
additional fuel to Debtor valued at $891,613.99 from June
10, 2015 through July 1, 2015, a11 of which deliveries
were after the alleged transfer . See Statem ent of Facts
nSOF'), % 40. The first temporal element is satisfied.
The fuel sales were not secured by any collateral . A s of
the Petition Date, CITGO held Credit Card Receipts valued
at $221,190.12, assuming the Credit Card Receipts were
subject to setoff, the net unsecured claim of CITGO was
excess of the
payment of $68,185.69. See SOF, % 5. Thus, the second
element is met. A lthough CITGO had a bond in place with
the Surety, such financial arrangement is not a security
interest . .
Lastly, CITGO 'S net unsecured claim
remained due and payable as of the Petition Date,
satisfying the third element . See SOF, % 41 .64
Ocitgo's Memorandum , Docket Entry No . 15, p . 30 %
6 Id . at %
As evidence that
$891,613.99 from June 10, 2015, through July
2015, CITGO cites
the affidavit of Citgo Senior Credit Manager, Karina Estrada-laimer
as well as invoices, Exhibit 11, and a summ ary thereof, Exhibit 12,
Citgo's memorandum .6
evidence that Citgo held
Credit Card Receipts valued at $221,190.12 as of the Petition Date,
and that its net unpaid and unsecured claim as of that date was
$670,423.87 or more, Citgo cites
included in its Memorandum,6
5 of the Statement of Facts
which plaintiff has responded ,
summary judgment, as
prem ature , raises issues of fact that require discovery , and
early in the proceeding for Plaintiff to properly respond .'f'
Then , without disputing that Citgo provided fuel to Gas-Mart valued
2015, through July
2015, or that as
OAffidavit of Citgo Petroleum Corporation in Support of Its
Motion to Dism iss or in the A lternative for Summary Judgment,
Docket Entry NQ . 15-1, % 7 (
nBetween June 9, 2015, and July 2,
2015, CITGO provided additional fuel in the amount of $891,613.99.
Group Exhibit 11 and Exhibit 12, 50th reflecting the value of the
fuel provided, are attached to the Memorandum . . .'); Exhibit 11,
Docket Entry No . 15-13, and Exhibit 12, Docket Entry No . 15-14 .
6 citgo's Memorandum , Docket Entry No .
id . at
Xplaintiff's Response , Docket Entry No .
6 . at 16 %
of the Petition Date, Citgo held an unpaid and unsecured claim
$670,423.87 or more, plaintiff argues that ' dqefendant has failed
burden of proof
subsequent new value defense .' g A sserting that a creditor relying
on the subsequent new value defense bears the burden of proof and
production , plaintiff argues that
support this affirm ative defense .
Pursuant to Fed . R .
Civ. P. 56( 2), E
dlefendant has not produced any facts
or evidence in a form that would be admissib le at trial .
dqefendant's motion to dismiss Count 111,
or in the alternative for summary judgment, should be
Citgo replies that
Rule 56 requires that ' E )n affidavit or declaration used
to support or oppose a motion must be m ade on personal
knowledge, set out facts that would be adm issible in
evidence, and show that the affiant or declarant is
competent to testify on the matters stated .' Fed . R .
Civ. P . 56 ( ( ). The Affidavit E
of Karina EstradaJaimeq is made on personal knowledge and identifies that
the Invoices are true and correct copies of business
records for which the Affiant is the records custodian .
The Invoices are business records admissible under Fed .
R . Evid . 803 ( ) ( for the truth of the matter .
invoices identify the amount of fuel, the price of the
fue1 and their delivery date ( date after the alleged
Preferential transfer). l
6 Id . at
% 81 .
citgo's Reply , Docket
34, p . 23 % 34.
Application of the Law to the Undisputed Facts
A lthough this action is in an early stage
parties has a
begin , the
the factual background set forth
which Citgo has
summary judgment as
premature because it raises issues of fact that require discovery,
and reference to
56( is titled, 'When Facts Are Unavailable to the Nonmovant,' and
pertinent part requires
party seeking relief thereunder
ushow gj by affidavit or declaration that, for specified reasons,
cannot present facts essential
Plaintiff has neither submitted an affidavit
presented any reasons why facts essential
justify its opposition
Fed . R .
Citgo's motion are unavailable absent
Accordingly, plaintiff has failed
requirements for relief under Rule 56(
Plaintiff also argues that Citgo's motion for summary judgment
should be denied because ug
dlefendant has not produced any facts or
form that would be admissib le at tria1 .'7
provides that A aq party may object that the material
cited to support or dispute
fact cannot be presented in
that would be admissible
H plaintiff's Response, Docket Entry
that Citgo's evidence would not be admissible at trial.
reason and because Citgo's evidence is admissible under Rule 803 (
as business records, plaintiff's objection
any basis in 1aw or fact .
district court may not grant summary judgment by default
simply because there
no substantive opposition
the motion .
The court may, however , accept as undisputed the movant's version
of the facts and grant
summary judgment when the
movant has made a prima facie showing of entitlem ent
judgment. John v. State of Louisiana (
Board of Trustees for State
Colleqes and Universities), 757 F.2d 698, 707-08 (
5th Cir. 1985).
See Everslev v. Mbank Dallas,
F.2d 172, 174 (
5th Cir. 1988)
holding that the court did not
granting a motion for
summary judgment when the movant's submittals make
showing of entitlement
Citgo 's version
matter of law). Because
facts as contained
Karina Estrada-laime and the business records attached thereto
establish that after Gas-Mart made the $68,185.69 payment alleged
to be preferential, Citgo provided Gas-Mart $891,613.19 of new fuel
for which Citgo had not received payment as
the Petition Date,
and because plaintiff has not submitted any evidence capable of
disputing Citgo's version of the facts, the
preferential transfer claim alleged in Count
Docket Entry No.
IV . Conclusions and Order
above, the court concludes
that Counts I and 11 are subject to dismissal without prejudice for
subject matter jurisdiction because plaintiff lacks
pursue the claims for breach of contract asserted
Count I and
stay asserted in Count
For the reasons stated in 5 111, above , the court concludes that
preferential transfer asserted in Count
Petroleum Corporation's Motion
and 11 and for
Summary Judgment as to Count III (Docket Entry No.
is GRANTED .7
For the reasons stated
5 II .
C, above, plaintiff's Request
Oral Argument (
Docket Entry No.
For the reasons stated in
II .B .1, plaintiff's Motion for
File Supplemental Authority
Support of Plaintiff's
Response to Defendant's Motion to Dismiss (
Docket Entry No. 38) is
The court has allowed the parties extraordinary leeway in
subm itting lengthy briefs and other written materials in connection
with the pending motions . A s the length of this Mem orandum Opinion
and Order indicatesr the court has expended considerable time
reading these papers and performing a significant amount of
independent research to be as fully informed as possible when
addressing the parties' arguments. While, because of the sheer
volume of information presented, it is not impossib le that some
arguments were overlooked, the parties should assume that failure
to expressly address a particular argument in this Memorandum
Opinion and Order reflects the court's judgment that the argument
lacked sufficient merit to warrant discussion . Accordingly , the
court strongly discourages the parties from seeking reconsideration
based on arguments they have previously raised or that they could
have raised .
GRANTED , and plaintiff's Motion
Authority in Support of Plaintiff's Response to Defendant's Motion
Docket Entry No. 41) is GRANTED .
SIGNED at Houston , Texas, this 8th day of F
r ary, 2018 .
UNITED STATES DISTRICT JUDGE
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