Section 548 Bankruptcy code

Starting on September 12, 2017, Peter Kravitz, as Settlement Trustee of the Samson Settlement Trust, filed approximately 293 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code.

Samson Resources Corporation and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on September 16, 2015 under Chapter 7 of the Bankruptcy Code.  The Debtors were an onshore oil and gas exploration and production company with interests in various oil and gas leases primarily located in Colorado, Louisiana, North Dakota, Oklahoma, Texas, and Wyoming.  On February 13, 2017, the Court entered an order confirming the Global Settlement Joint Chapter 11 Plan of Reorganization of Samson Resources Corporation and Its Debtor Affiliates. The cases are jointly administered pursuant to Rule 1015(b) of the Bankruptcy Rules.

The various avoidance actions are pending before the Honorable Christopher S. Sontchi.  As of the present date, the Pretrial Conference has not yet been scheduled.

For readers looking for more information concerning claims and defenses in preference litigation, attached is a booklet prepared by this firm on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the recent decision of Klauder v. Echo/RT Holdings LLC (In re Raytrans Holding, Inc.), Adv. No. 15-50273 (CSS) (Del. Bankr. Aug. 10, 2017), Judge Sontchi granted Defendants’ Motion to Dismiss the Trustee’s Second Amended Complaint, dismissing the Trustee’s claims in their entirety either under collateral estoppel or the doctrine of res judicata.

Procedural Background

Prior to the Raytrans bankruptcy proceeding, creditor Spring Capital Real Estate, LLC (“Spring Capital”) commenced a lawsuit in the Court of Chancery against Defendants Echo/RT Holdings LLC and Echo Global Logistics, Inc. (“Echo Defendants”) and RayTrans Distribution on October 31, 2012, seeking to void as fraudulent conveyances the transfers made to defendants by Holdings and RayTrans Distribution.

The Trustee joined the fraudulent transfer action commenced by Spring Capital in the Court of Chancery. On November 3, 2014, the Trustee asserted crossclaims against the defendants, pursuant to Del. Ch. R. 13(g), “seeking to assert the estate’s interest in, and to void as fraudulent conveyances, the transfers made to defendants by Holdings under Delaware and Illinois state law that were being challenged by Spring Capital. As recoverable by a creditor holding an unsecured claim.”

On December 31, 2013, the Court of Chancery dismissed Spring Capital’s claims with prejudice.  The Trustee then filed Amended Cross-Claims against the Echo Defendants, asserting slightly modified fraudulent transfer claims brought by Spring Capital, under both Delaware and Illinois law, that had also been dismissed by the Court of Chancery.  The Echo Defendants moved to dismiss the Trustee’s claims, which was granted on February 18, 2016, and the Court of Chancery both dismissed the Trustee’s entire Amended Cross-Claim with prejudice and denied the Trustee’s request for leave to amend (the “Dismissal Order”).  On December 12, 2016, the Delaware Supreme Court rejected the appeals filed by the Trustee and Spring Capital and affirmed the Dismissal Order.

Before the Court of Chancery granted the Motion to Dismiss, the Trustee filed the instant adversary proceeding against the Echo Defendants on April 24, 2015, asserting (i) three counts for avoidance of fraudulent transfers pursuant to 11 U.S.C. §§ 548 and 550, (ii) a count for avoidance of preferential transfer pursuant to 11 U.S.C. § 547, (iii) one count for recovery of an avoided transfer pursuant to 11 U.S.C. § 550, and (iv) disallowance of all claims pursuant to 11 U.S.C. § 502(d) and (j)

On November 7, 2016, the Trustee sought leave to amend his complaint. On December 28, 2016, the Court granted the Motion to Amend and the Trustee filed his Second Amended Complaint, now asserting two counts for avoidance of fraudulent transfers under Sections 544, 548, and 550 and added a new breach of contract claim (Count V) and a claim for attorneys’ fees (Count VIII). The original breach of contract claim (Count VI) and accounting claim (Count VII) remain in the Second Amended Complaint.

Analysis

The Court found that Counts I and II (for fraudulent transfer under Sections 544 and 548) were barred under the doctrine of collateral estoppel.  The Court of Chancery previously found that the APA was supported by reasonably equivalent value, and that the APA did not amount to a fraudulent transfer.

The Court likewise dismissed Counts III and IV, seeking the avoidance and recovery of preferential transfers under Sections 547 and 550 of the Bankruptcy Code.  Per the Opinion, the Trustee merely stated that Defendants were “insiders” of the Debtor, but offered no factual support for such a conclusion in the Second Amended Complaint.

Finally, the Court dismissed Counts V (breach of contract and judicial estoppel), VI (breach of contract), VII (accounting) and VIII (breach of guaranty and attorneys’ fees) under the doctrine of res judicata.  The Court noted that for the past three years, the Trustee and the defendants have been litigating before the Court of Chancery and then on appeal to the Delaware Supreme Court, and that the “basis of the entire adversary proceeding, and the prior Court of Chancery litigation, was the APA.”  Accordingly, the Court dismissed the Trustee’s Second Amended Complaint in its entirety.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In late August, the Official Committee of Unsecured Creditors (the “Committee”) in the Pacific Energy Resources bankruptcy, began filing adversary actions against various creditors.  The complaints filed by the Committee allege the defendants received preferential transfers and/or fraudulent transfers from the Debtor.  Prior to filing the adversary actions,  the Committee filed a motion with the Delaware Bankruptcy Court seeking standing to pursue the avoidance actions that would otherwise belong to the Debtor (the “Motion,” a copy of which is available here).  The Court granted the Committee’s Motion on April 19, 2010 with the consent of the Debtor.

Pacific Energy filed for bankruptcy protection on March 9, 2009.  Approximately three months later, on June 4, 2009, the Court entered an order approving Debtor’s postpetition financing.  As stated in the order, “… [t]he Prepetition Lenders and the DIP Lenders shall subordinate their unsecured deficiency claims to the claims of the general unsecured creditors solely with respect to the Settlement Proceeds, if any, and the proceeds of the avoidance actions under chapter 5 of the Bankruptcy Code …”  Under the DIP financing order, Debtor’s lenders agreed to allow the proceeds of the preference actions to go to the benefit of the unsecured creditors, instead of the secured creditors.  Motion at *2.

In its Motion, the Committee concedes that the Bankruptcy Code does not provide express authority for the Committee to prosecute claims belonging to the estate.  Motion at *4.  Instead, the Committee cites to section 1103(c)(5) of the Bankruptcy Code that permits a committee to perform “such other services as are in the interests of those represented.”  11 U.S.C. Sec. 1103(c)(5).  The Committee also cites section 1109(b) of the Bankruptcy Code that authorizes a creditors’ committee, as an interested party, to “appear and be heard on any issue” in a bankruptcy proceeding.  11 U.S.C. Sec. 1109(b).  Motion at *4.  Finally, the Committee cites the Third Circuit’s decision in Cybergenics for the idea that “sections 1109(b) and 1103(c)(5), taken together, evince a Congressional intent for committees to play a robust and flexible role representing the bankruptcy estate, even in adversarial proceedings.”  Official Comm. of Unsecured Cred. of Cybergenics Corp. v. Chinery, 330 F.3d 548, 566 (3d Cir. 2003).

With the avoidance actions now filed, the Court has scheduled a pretrial conference on November 3, 2010 at 1:30 p.m. The Pacific Energy bankruptcy, as well as the avoidance actions filed by the Committee, are before the Honorable Kevin J. Carey, Chief Judge of the United States Bankruptcy Court for the District of Delaware.