United States District Court, S.D. New York
IN RE SABINE OIL & GAS CORP., et al., Reorganized Debtors.
SABINE OIL & GAS CORP., et al. Appellees. OFFICIAL COMMITTEE OF UNSECURED CREDITORS, et al., Appellants,
MEMORANDUM OPINION AND ORDER
LORETTA A. PRESKA, United States District Judge.
to 28 U.S.C. § 158(a) and Federal Rule of Bankruptcy
Procedure 8003(a), the Official Committee of Unsecured
Creditors (the "Official Committee"), the Bank of
New York Melon Trust Company as the Trustee under the 2017
Notes Indenture ("BONY"), the Wilmington Savings
Fund Society, FSB, as Indenture Trustee for the Forest Oil
7.25% Unsecured Notes due 2019, and Delaware Trust Company as
the Indenture Trustees for the Forest Oil 7% Unsecured Notes
due 2020, collectively referred to as the Appellants, have
appealed the Bankruptcy Court's Confirmation Order of the
Plan of Reorganization (the "Confirmation Order")
for the Debtors, Sabine Oil & Gas Corporation and its
related entities ("SOGC" or the
"Debtors"). SOGC, as the reorganized
debtors-appellees, has moved to dismiss this appeal. (Mot.
Dismiss, Sept. 9, 2016, ECF No. 42). Appellants have
submitted a memorandum of law in opposition to the motion to
dismiss, (Opp., Nov. 3, 2016, ECF No. 62), and SOGC has
replied in turn. (Reply, Nov. 14, 2016, ECF No. 63). Because
the plan of reorganization has been substantially consummated
and unraveling the settlement would both frustrate
Debtor's emergence from bankruptcy and require unwinding
complex transactions in an infeasible manner, the Court finds
that the appeal of the Confirmation Order is equitably moot.
Accordingly, the motion to dismiss is granted.
engaged in the acquisition, production, exploration, and
development of onshore oil and natural gas properties in the
United States. (Mot. Dismiss at 1). In December 2014, Sabine
Oil & Gas, LLC ("Legacy Sabine") merged with
Forest Oil Corporation ("Legacy Forest") to create
SOGC. (Id.). A sharp slump in energy prices led SOGC
to file for Chapter 11 bankruptcy in July 2015 and SOGC's
Board to establish an Independent Committee to investigate
potential claims arising from the merger of Legacy Sabine and
Legacy Forest. (Id.).
13, 2016, the Bankruptcy Court (Chapman, J.) began a 14-day
confirmation hearing on the Debtors' Second Amended
Chapter 11 Joint Plan of Reorganization. (Mot. Dismiss at 2).
On July 27, 2016, the Bankruptcy Court confirmed the plan in
its Confirmation Order. (Id.). After extensive
negotiations between the Debtors, the First Lien Lenders that
had provided the Debtors with reserve-based loans ("RBL
Lenders"), and certain Second Lien Lenders, the parties
reached a settlement whose terms include: the RBL Lenders (1}
settled their adequate protection claims, (2) settled certain
lien-related disputes, (3) accepted equity in satisfaction of
their adequate protection and secured claims totaling over $1
billion, (4) waived their unsecured deficiency claims, (5)
provided commitments of up to $200 million in exit financing,
(6) ceded over $70 million in stock and warrants to the
Second Lien Lenders, and (7) ceded more than $28 million in
stock and warrants to unsecured and undersecured creditors.
(Id. at 2-3). In return, the Confirmation Order
released RBL Lenders from estate claims and certain
third-party claims against the RBL Lenders and the Legacy
Forest officers and directors from the estate claims.
(Id. at 3).
Bankruptcy Court rejected the Official Committee's
objections to the settlement and releases in the Plan,
finding that they were "integral and necessary part of
the Plan and represent a valid exercise of the Debtors'
business judgment" and that they are "in the best
interests of the estates." (Confirmation Order ¶
52, July 27, 2016, ECF No. 6 Ex. A (Florence Aff.)). During
the hearing, evidence was presented that there had been
an extensive investigation into the constructive
fraudulent conveyance claims and that the releases in favor
of the RBLs and the Forest Directors were based on a
determination that the claims were not colorable or were not
in the best interest of the estate to pursue. (Tr. Hearing
46-47, June 22, 2016, ECF No. 18 Ex. D (Balassa Aff.)). The
releases were an essential part of the package with the RBL
Lenders. (Id. at 48, 149 (June 23, 2016), 248 (June
Bankruptcy Court expanded on its Confirmation Order in a
205-page Memorandum Decision, explaining that the RBL
releases were "an integral and important part of the
success of the Debtors' reorganization" and that the
RBL Lenders agreed to negotiate with the Debtors only
“[i]n exchange for the Settlement and
inclusion of the Constructive Fraudulent Conveyance Claims,
the Bad Act Claims, and the Bucket II Claims in the RBL
Release." (Mem. Decision 166-67, Aug. 18, 2016, ECF No.
6 Ex. B (Florence Aff.)). The Bankruptcy Court concluded that
"[t]he settlement ... is fair, reasonable, and well
above the lowest point in the range of reasonableness and the
plan otherwise satisfies each and every requirement for
confirmation. It's not even close." (Id. at
27, 2016, the Official Committee made an oral motion for a
stay of the Confirmation Order pending the appeal of that
order. (Tr. Hearing 79 (July 27, 2016)). This Court also
declined to stay the plan, (see Mem. Op. and Order,
Aug. 5, 2016, ECF No. 29), as did the Court of Appeals on
August 10, 2016. (See Mot. Dismiss at 4}.
addition, on March 31, 2016, the Bankruptcy Court denied the
Official Committee and other unsecured lenders (the "STN
appellants") standing to pursue claims on behalf of the
estate. The Official Committee sought standing to bring
claims against the RBLs, the Second Lien Lenders, and several
directors and officers of the pre-combination entities,
Forest and Sabine, First Reserve Fund, and members of the
current Board of Directors of SOGC. See generally In re
Sabine Oil & Gas Corp., 547 B.R. 503 (Bankr.
S.D.N.Y. 2016), affd, No. 16-cv-2561 (JGK), 2016 WL
3554995 (S.D.N.Y. June 24, 2016). On April 5, 2016, the
STN appellants moved for a stay pending appeal of
the STN Order. On April 21, 2016, the Bankruptcy
Court denied the stay. In re Sabine Oil & Gas
Corp., 548 B.R. 674, 678 (Bankr. S.D.N.Y. 2016).
24, 2016, this Court affirmed the Bankruptcy Court's
STN decision, concluding that the STN
appellants failed to plead colorable claims for constructive
fraudulent conveyance against the RBLs and Second Lien
Lenders, did not plead plausible claims against the Forest
and Sabine directors and officers, and failed to show that
bringing a narrow set of claims against the Second Lien
Lenders was in the best interest of the estate. In re
Sabine Oil & Gas Corp., 2016 WL 3554995, at *8-*11.
The STN appellants did not seek a stay of this Court's
STN decision nor did they appeal the denial by the
Bankruptcy Court of their motion for a stay of the
STN appellants appealed the STN decision to
the Court of Appeals. See In re Sabine Oil & Gas
Corp., 16-2187 (2d Cir. June 27, 2016). The STN
appellants moved to expedite the appeal. In a one-judge
motion issued by Judge Livingston on July 15, 2016, the
motion to expedite was denied. Id. Appellees
subsequently moved to dismiss the STN appeal as
constitutionally moot, which the Court of Appeals granted on
November 22, 2016. See In re Sabine Oil & Gas
Corp., 16-2187 (2d Cir. Nov. 22, 2016).
Court now turns to the Debtors' motion to dismiss the
appeal of the Bankruptcy Court's Confirmation Order on
the grounds of equitable mootness.