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In Re: Texaco Inc., Texaco Capital Inc., and Texaco Capital, N.V v. Texaco

September 28, 2011

IN RE: TEXACO INC., TEXACO CAPITAL INC., AND TEXACO CAPITAL, N.V., REORGANIZED DEBTORS. KLING REALTY COMPANY, INC., WALET PLANTING COMPANY, ET AL., APPELLANTS,
v.
TEXACO, INC., APPELLEE.



The opinion of the court was delivered by: Seibel, J.

OPINION AND ORDER

Before the Court is the appeal of Appellants Kling Realty Company, Inc., Walet Planting Company, et al. (collectively, "Kling"), (Doc. 1), filed on December 30, 2010, from an Order of the United States Bankruptcy Court for the Southern District of New York, dated August 3, 2010 (the "Order"), (Doc. 3874*fn1 ). For the following reasons, the Order of the Bankruptcy Court is affirmed.

I. Background

A. The 1946 Lease and Subsequent Releases

In 1946, the parties*fn2 entered into an oil and gas lease (the "Lease") that allowed Appellee Texaco Inc. to explore for and produce oil and gas on property in Iberia Parish, Louisiana in exchange for royalty payments to Kling. (See Declaration of Henry J. Ricardo, Doc. 15 ("Ricardo Decl."), Ex. 2.) The Lease allowed Texaco to release portions of the leased property:

Lessee may at any time, and from time to time during the lease, execute and deliver to Lessor or place of record a release covering all or any portion or portions of the leased premises as to all or any specified mineral or minerals, and thereupon shall be relieved of all obligations as to the acreage surrendered, or as to that acreage as to only the particular mineral or minerals specified, as the case may be. After a release of this lease in its entirety as to only part of the acreage, the rentals payable hereunder shall be reduced in the proportion that the acreage covered hereby is reduced by such release. (Id. ¶ 8.) The Lease also obligated Texaco to pay for any damage it caused to the land:

[T]he Lessee shall, without undue delay, pay and reimburse to the Lessor any and all damages, in full, to Lessor's lands, crops, roads, and property, caused by its operations, either of drilling wells or laying pipelines, or in maintaining, operating, and also in constructing or using buildings, roads, and other works on the said land as permitted herein. (Id. ¶ 10.) Over the years, Texaco released certain parts of sections (referred to as numbered "Sections") of the land covered by the Lease. For instance, in 1974, Texaco released parts of Section 21. (Ricardo Decl. Ex. 5.)

At issue in this case is a release Texaco executed on June 6, 1986 (the "1986 Partial Release"). (Ricardo Decl. Ex. 9.) Texaco released "any and all rights whatsoever" to almost all of the land under the Lease. (Id. at Bates No. B2003900 0001024.) The 1986 Partial Release, granted on request of Kling, (see Ricardo Decl. Exs. 7--8), excluded only 30 acres surrounding Well 14, located on Section 26 and the only productive well remaining under the Lease, and also reserved surface rights across neighboring Section 27 so that Texaco could access Well 14:

Lessee further reserves and retains such rights-of-way, easements, servitudes and privileges for the operations of pipelines and other facilities located over, upon and across that portion of the leased premises hereby released [i.e. Section 27], which are necessary or convenient to Lessee's continued operations on the lands retained under the [Lease]. (1986 Partial Release Bates No. B2003900 0001025; see also Letter From Roger J. Keller, Land Manager, to Minos R. Armentor (May 14, 1986), Ricardo Decl. Ex. 8 ("In issuing this release . . . Texaco will retain the use of the surface of the released acreage which is necessary or convenient for continued operations.").)*fn3 After production at Well 14 ended in July, 1987, (Stipulation ¶ 14),

Texaco released all remaining rights under the Lease on July 20, 1987 (the "1987 Release"). (Ricardo Decl. Ex. 10.) The 1987 Release was publicly recorded on November 12, 1987. (Id.)

B. Bankruptcy Proceedings

Before the 1987 Release was executed or recorded, Texaco filed a Chapter 11 petition with the Bankruptcy Court on April 12, 1987 (the "Petition Date"). (Stipulation, Definitions ¶ 1.) As of the Petition Date, "the only portion of the property subject to the 1946 Lease that was not the subject of a partial release" was the 30-acre portion surrounding Well 14 on Section 26. (Stipulation ¶ 11.) Oil production on Section 27 had ceased on November 3, 1986. (Id. ¶ 9.) The cause of Texaco's bankruptcy filing was a large jury verdict against Texaco and in favor of Pennzoil in an unrelated case. (See Hr'g Tr. 35:21--36:6, Jan. 28, 2010, Doc. 3866.)

On January 26, 1988, the Bankruptcy Court set a bar date of March 15, 1988 (the "Bar Date").*fn4 (Bar Date Notice ¶ 2.)*fn5 Any claim not filed by the Bar Date, with a few exceptions, was "forever barred and the debtors and their estates [were] forever discharged from any and all indebtedness or liability to the holder of the claim." (Id.)*fn6 One exception, relevant to Kling's position in this case, was for "any holder of an administrative expense under section 503(b) of the Bankruptcy Code entitled to priority under section 507(a)(1) of the Bankruptcy Code."

(Id. ¶ 3.)*fn7 *fn8 That same month, Texaco mailed notice of the Bar Date to creditors and potential creditors (Affidavit of Service by Mail of Notice of Bar Date for the Filing of Proofs of Claim, Ricardo Decl. Ex. 12), including to the address that it had on file for Kling, (Stipulation ¶ 36). Kling did not submit a proof of claim. (Id. ¶ 39.)

Texaco then submitted the Reorganization Plan,*fn9 which the Bankruptcy Court confirmed on March 23, 1988 (the "Confirmation Date"). (Confirmation Order.)*fn10 All debts and claims that arose before the Confirmation Date were discharged, (id. ¶ 22),*fn11 and creditors were precluded from asserting any such claim, (Reorganization Plan art. VII I at A-15). Administrative claims were to be paid in full. (Id. art. III A(1) at A-11.) All executory contracts and unexpired leases were assumed unless objected to, per section 365 of the Bankruptcy Code.*fn12 (Id. art. VI at A-13; see also Confirmation Order ¶ 28.)

C. The Louisiana Action and the Bankruptcy Court Decision

Almost twenty years later, on September 25, 2007, Kling filed an action against Texaco in Louisiana state court (the "Louisiana Action"). (Petition for Damages, Ricardo Decl. Ex. 14.) Kling sought damages for contamination of Section 27 allegedly resulting from Texaco's "oil and gas exploration and production activities." (Id. ¶ 3.) According to Kling, it did not intend to pursue any claims that were discharged in bankruptcy. (Id. ¶ 29.)

But Texaco claimed, and still does in this Court, that all alleged contamination in Section 27 occurred prior to the Petition Date, and thus any claim to compensation for such injury was discharged in bankruptcy. (Texaco Br. 11--12.)*fn13 As a result, Texaco filed its Motion to Reopen*fn14 in the Bankruptcy Court seeking an order requiring Kling to dismiss the Louisiana Action. After multiple rounds of briefing, the Bankruptcy Court issued an oral ruling on May 28, 2010 (the "Bench Ruling"). (Order Ex. A.) The Bankruptcy Court sided with Texaco, finding that Kling asserted pre-petition claims, since discharged by the Confirmation Order. (Bench Ruling 26:17-- 21.) The Bankruptcy Court also denied Kling's request to file a late proof of claim, finding that Kling did not establish that its failure to file a proof of claim prior to the Bar Date was due to "excusable ...


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