Asarco, LLC v. Mont. Res., Inc.

514 B.R. 168

ASARCO, LLC, a Delaware corporation and Asarco Master, Inc., a Delaware corporation, Plaintiffs,

v.MONTANA RESOURCES, INC., a Montana corporation, and Montana Resources, LLP, a Montana limited liability partnership, Defendants.

No. 1:12–CV–137.

United States District Court,

S.D. Texas,

Brownsville Division.

Signed July 22, 2013.

Brian R. Holland, Kenneth K. Lay, Crowley Fleck, Helena, MT, Gregory L. Evans, Tanya Guerrero, Daphne HSU, James G. Warren, Laura G. Brys, Integer Law Corporation, Los Angeles, CA, Thomas M. Farrell, McGuire Woods LLP, Houston, TX, William Adam Duerk, IV, Milodragovich, Dale & Steinbrenner, PC, Missoula, MT, Dion William Hayes, McGuire Woods LLP, Richmond, VA, Patrick L. Hayden, McGuire Woods LLP, New York, NY, for Plaintiff Asarco, LLC, a Delaware Corporation.

A. Christopher Edwards, A. Clifford Edwards, John Williams Edwards, Triel Culver, Edwards Frickle Culver, Billings, MT, Aaron J. Power, Eric M. English, Henry J. Kaim, Mark W. Wege, Penn C. Huston, King & Spalding LLP, Houston, TX, for Defendant Montana Resources, Inc., a Montana Corporation.

Memorandum Opinion and Order

ANDREW S. HANEN, District Judge.

Pending before the Court is the Motion to Dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure filed by Montana Resources, Inc. and Montana Resources, LLP.¹ [Doc. No. 23; Br. in Supp., Doc. No. 24; Supplement to Mot., Doc. No. 78]. Having reviewed the motion, the responses thereto and the applicable law, the Court hereby GRANTS in part and DENIES in part Defendants' motion.

I. Factual Background and Procedural History

A. Montana Resources, LLP

In May 1989, AR Montana Corporation, predecessor of ASARCO Master, Inc. and a special purpose subsidiary of ASARCO, LLC,² entered into a written partnership agreement (the “Partnership Agreement”) with Montana Resources, Inc. [Pls.' First Am. Compl., Doc. No. 46 ¶ 10]. The agreement formed Montana Resources, LLP, [ id.], for the purposes of operating and developing certain mining properties in Butte, Montana, [Am. & Restated Agreement of Gen. P'ship, Doc. No. 82–1 § 2.01]. The initial division of partnership interests allocated 50.1% to Montana Resources, Inc. and the remaining 49.9% to AR Montana. [ Id. §§ 3.01, 3.02]. The agreement provided that the partners would be liable for “Cash Calls” if necessary to meet the partnership's expenses, [ id. § 8.02], and allowed for diminution of partnership interest in the event of a partner's default with respect to its “Cash Calls” obligations, [ id. §§ 11 (defining default); 12.01]. Specifically, the agreement authorized the non-defaulting partner to “transfer an amount adequate to cover the deficit amount of the Cash Call” and to “deem such transfer to constitute a cure of ... Default ... and reduce the Partnership Interest of the Defaulting Partner by 1.0% for each $100,000 of capital the Defaulting Partner failed to contribute....” [ Id. § 12.01(d)(ii)(B) ]. Additionally, Section 12.02 of the agreement (the “Reinstatement Provision”) provided that a Defaulting Partner, whose interest had been diluted as detailed above, could be reinstated to its original status under the following circumstances:

[T]he Defaulting Partner may cure [a] default by contributing all amounts owed ... to the Non–Defaulting Partner and the Partnership ... [after which] such Partner ... shall possess the voting power [and rights to cash distribution and other income allocations] ... it held with respect to its lowest Partnership Interest prior to the failure to pay a Cash Call....

[ Id. § 12.02].

Beginning in October 2002, AR Montana continuously defaulted on its “Cash Calls” obligations, which eventually culminated in a reduction of its voting and distribution rights in the partnership to 0% by December 2003. [Doc. No. 46 ¶¶ 11–16]. According to Plaintiffs, Montana Resources, Inc. “purported to dissociate” AR Montana from the partnership at this time. [ Id. ¶ 16].

B. Bankruptcy Proceedings

In 2005, AR Montana was merged into ASARCO Master, Inc., and later that year, ASARCO, LLC and its affiliates, including ASARCO, Master, Inc., filed voluntary bankruptcy petitions in the United States Bankruptcy Court for the Southern District of Texas (the “underlying bankruptcy case”). [Doc. No. 46 ¶ 18]. See also In re ASARCO LLC, No. 05–21207 (Bankr.S.D.Tex. filed Aug. 9, 2005). MRI filed Proofs of Claim against ASARCO in the underlying bankruptcy case in excess of $100 million. [ASARCO's Compl. and Objection to Proofs of Claim filed by Mont. Res., Inc., Doc. No. 78–1 at 16]. Subsequently, Plaintiffs also initiated an Adversary Proceeding against MRI.³ In their Original Complaint, filed in the Adversary Proceeding in April of 2007, Plaintiffs asserted various fraudulent transfer claims related to the 2002–2003 diminutions of ASARCO's partnership interest, an objection to MRI's Proofs of Claim, and the following breach of contract and improper expulsion claim:

Under the Partnership Agreement, AR Montana had a right to reinstatement at its original 49.9% interest level. Upon dilution, MRI improperly expelled AR Montana from the MR Partnership but did not dissolve the MR Partnership.

Though AR Montana's interest in the MR Partnership was fully diluted, AR Montana continues to enjoy rights under the Partnership Agreement ... includ[ing]the right to reinstatement upon payment of the alleged defaults with interest.

Accordingly, as a remedy for MRI's breach of contract, ASARCO seeks a declaration that AR Montana enjoys a right to reinstatement to its original interest level in the MR Partnership upon compliance with the appropriate terms regarding reinstatement contained in the Partnership Agreement. ASARCO also seeks monetary damages as a remedy for income it would have received had its partnership interest not been improperly diluted.

[Doc. No. 78–1 at 15–16 (emphasis added) ]. MRI moved for the claim's dismissal, arguing that the 2002–2003 dilutions were in “strict compliance” with section 12.02(d)(ii)(B) of the Partnership Agreement; and that “[n]o partner is entitled to reinstatement of its interest under the Partnership Agreement once that interest has been diluted pursuant to section 12.01(d)(ii)(B).” [Mont. Res., Inc.'s Mot. to Dismiss the Adversary Proceeding and in the Alternative to Transfer Venue, June 11, 2007, Adv. No. 07–02024, Doc. No. 12]. ASARCO responded by amending its complaint in July of 2007. [ASARCO's First Am. Compl. & Objection to Proofs of Claim Filed by Mont. Res. Inc., Doc. No. 78–2]. In its First Amended Complaint, ASARCO dropped the breach of contract/declaratory judgment claim, leaving only two issues to be litigated: (1) whether MRI's diminutions of AR Montana's partnership interest during the years of 2002–2003 were fraudulent transfers; and (2) relatedly, whether the parties could reach a resolution regarding MRI's Proofs of Claim. On August 25, 2009, the Stipulation and Order (the “Stipulation” or “Agreed Order”) dismissing the Adversary Proceeding “with prejudice” was entered. [Stipulation & Order Allowing Claims of Mont. Res., Inc. & Dismissing Adversary Proceeding, Doc. No. 78–3]. The factual recitations of the Agreed Order imply the existence of a written settlement agreement that had been entered into as a prelude to the Stipulation. Neither side has provided that agreement to this Court nor claimed that it somehow controls the resolution of the issues herein.

Shortly after the entry of this Stipulation, on November 13, 2009, the underlying bankruptcy case similarly came to a conclusion. [Mem. Op., Order of Confirmation, & Inj., Doc. No. 78–9]. See also In re ASARCO LLC, 420 B.R. 314 (S.D.Tex.2009). A Joint Disclosure Statement had been filed on July 6, 2009, to which the following proposed plans for reorganization were attached: (1) ASARCO LLC and the subsidiary Debtors' Sixth Amended Plan of Reorganization; (2) ASARCO, Inc. (referred to as “Parent” during the bankruptcy) and Americas Mining Corp. Modified Fifth Amended Plan of Reorganization; and (3) Harbinger's Second Amended Plan of Reorganization. [Joint Disclosure Statement in Supp. of the Respective Plans of Reorganization Proposed by (1) The Debtors; (2) ASARCO Inc. and Americas Mining Corp.; and (3) Harbinger Capital Partners Master Fund I, Ltd., Doc. No. 82–3 at 1]. In Section 7 of the Disclosure Statement, titled “Litigation Trust Under the Parent's Plan,” Section 7.10 states in relevant part:

Article 5.10 of the Parent's Plan provides that the Debtors' claims against MRI, including those asserted in [the Adversary Proceeding], are not Litigation Trust Claims under the Parent's Plan, and will not be transferred to the Litigation Trust. Rather, the Debtors' claims against MRI are expressly reserved for Reorganized ASARCO to pursue in the ordinary course.

[ Id. at 229].

The Fifth Amended Plan of Reorganization, to which the Disclosure Statement referred, was later twice amended, and on August 17, 2009, a redline comparison between the Sixth and the Seventh Amended Plans was submitted to the Bankruptcy Court. [Comparison of Seventh Am. Plan to the Parent's Sixth Am. Plan of Reorganization for the Debtors under Chapter 11 of the United States Bankruptcy Code, as Modified on August 14, 2009, Doc. No. 78–8]. The comparison reveals that Article V, which included Article 5.10, and which was previously titled “Litigation Trust and SCC Litigation Trust,” was deleted in its entirety. [ Id. at 19–31]. A conformed Seventh Amended Plan (the “Plan”) was then filed in the Bankruptcy Court on August 30, 2009. [Conformed Version of Parent's Seventh Am. Plan for Reorganization, Doc. No. 82–8]. Finally, on November 13, 2009, this Court entered an order (the “Confirmation Order”), confirming the Parent's Plan and concluding the main portion of the underlying bankruptcy case.⁴ [Doc. No. 78–9].

The Plan that was adopted included two critical provisions for the purposes of ruling on this Motion to...