Halperin v. Moreno (In re Green Field Energy Servs., Inc.)

594 B.R. 239

IN RE: GREEN FIELD ENERGY SERVICES, INC., et al., Debtors.

Alan Halperin, as Trustee of the GFES Liquidation Trust, Plaintiff,

v.Michel B. Moreno; MOR MGH Holdings, LLC ; Frac Rentals, LLC; Turbine Generation Services, LLC ; Aerodynamic, LLC; Casafin II, LLC, Defendants.

Case No. 13-12783(KG)

Adv. Pro. No. 15-50262(KG)

United States Bankruptcy Court, D. Delaware.

Signed September 12, 2018

Filed September 27, 2018

Counsel for Plaintiff Alan Halperin, as Trustee of the GFES Liquidation Trust, Steven K. Kortanek, Patrick A. Jackson, Joseph N. Argentina, Jr., DRINKER BIDDLE & REATH LLP, Robert J. Stark, Marek P. Krzyowski, James W. Stoll, Joel S. Miliband, Melanie Dahl Burke, Brian M. Alosco, BROWN RUDNICK LLP

Counsel for Defendants Michel B. Moreno; MOR DOH Holdings, LLC; MOR MGH Holdings, LLC; FRAC Rentals, LLC; Turbine Generation Services, LLC; Aerodynamic, LLC; Casafin II, LLC, Marc J. Phillips, MANNING GROSS + MASSENBURG LLP, Jeffrey R. Fine, Alison R. Ashmore, Aaron Kaufman, R. Chris Harvey, DYKEMA COX SMITH

OPINION AND FINDINGS OF FACT AND CONCLUSIONS OF LAW

KEVIN GROSS, U.S.B.J.

I. INTRODUCTION ¹

This Opinion follows the trial in the adversary proceeding on March 19-23, 2018, and May 1-2, 2018. The parties are plaintiff Alan Halperin, as Trustee of the GFES Liquidation Trust ("Trustee" or "Plaintiff"), and defendants Michel B. Moreno ("Moreno"), MOR MGH Holdings, LLC ("MGH Holdings"), Frac Rentals, LLC ("Frac Rentals"), Aerodynamic, LLC ("Aerodynamic"), Casafin II, LLC ("Casafin"), and Turbine Generation Services, LLC ("TGS" and together with Moreno, MGH Holdings, Frac Rentals, Aerodynamic, and Casafin, "Defendants"). At trial, the Court heard live testimony from Moreno, Ted McIntyre ("McIntyre"), former officer and director Enrique Fontova ("Fontova"), former director Charles Kilgore ("Kilgore"), and the experts presented by both parties, Christopher J. Kearns ("Kearns") (for the Trustee) and Rodney W. Sowards ("Sowards") (for Defendants). The Court also considered extensive stipulated facts, and reviewed prior deposition testimony from both live witnesses and witnesses who were outside the district and had not volunteered to testify at trial.²

The Trustee filed this adversary proceeding on April 6, 2015, following confirmation of the plan of liquidation of debtors Green Field Energy Services, Inc., et al. (the "Debtor" or "Green Field"). Before its bankruptcy in 2013 and ultimate liquidation in 2014, Debtor was an oil services business. It differentiated itself by using frac pressure pumps powered by aero-derivative turbine engines. The use of this technology allowed Green Field to operate and compete on a smaller footprint with more fuel flexibility, including natural gas or field gas, as opposed to diesel fuel traditionally used by competitors.

Within months of closing on a high-yield bond offering in 2011, and in the midst of Green Field's ramp up, the demand for frac services declined, causing liquidity problems and creating the need for Debtor to find alternative sources of capital. Moreno's search for capital led him to General Electric Company and its affiliate GE Oil & Gas, LLC ("GEOG" and, collectively with General Electric Company, "GE"), which expressed interest in an even newer start-up joint venture under which Moreno or Green Field would produce turbine-powered power generator units (instead of turbine-powered frac pumps) to be leased to the same producers targeted by Debtor for its traditional oil services.

The Trustee's Complaint³ originally pleaded 35 counts in four broad categories: (1) Counts 1-10 related to the transfer of the so-called power generation business ("PowerGen" or "power generation") opportunity; (2) Counts 11-14 related to the two share purchase agreements; (3) Counts 15-26 related to various alleged preferential and/or fraudulent transfers; and (4) Counts 27-35 sought disallowance and/or subordination of various administrative claims and proofs of claim filed by Moreno and/or entities he controls.

The Trustee has settled and dismissed Causes of Action ("Count") 9, and 10, against all Director Defendants. The Trustee also settled Counts 11 and 33 as against one of Debtor's former shareholders—Moody, Moreno and Rucks, LLC ("MMR"), which was dismissed from this proceeding. The Trustee also voluntarily withdrew Counts 4, 5, 13, 15, 16, 17, 18, 20, 22, 25, and 26.

On January 24, 2018, the Court entered a Memorandum Opinion and Order on the parties' cross motions for partial summary judgment (D.I 463, 464) (the "SJ Opinion"), resolving Counts 19, 23, 24, 30, 31, 34, and 35. As a result of the Court's partial ruling in the SJ Opinion, the Trustee voluntarily withdrew Count 21.

By two subsequent orders on both parties' motions to reconsider and to amend (Memorandum Order Denying Motion to Reconsider, D.I. 473; Memorandum Order re Motion to Amend, D.I. 476), the Court clarified its SJ Opinion concerning the share purchase agreement theories under Counts 11 and 12, and the Court narrowed issues for trial on Moreno's alleged "transfer beneficiary" liability which the Trustee asserts under 11 U.S.C. § 550(a)(1) in Counts 19, 23 and 24.

Accordingly, the issues presented for trial included:

1) Counts 1, 2, 3, 6 and 7 – fraudulent transfer, breach of fiduciary duty and corporate waste claims against Moreno and TGS related to the alleged transfer or waiver of the power generation business;⁴

2) Counts 11, 12 and 14 – breach of contract, breach of fiduciary duty and tortious interference claims against MGH Holdings and Moreno related to the alleged breaches of the two SPA contracts between Debtor and MGH Holdings; and

3) Counts 19, 23 and 24 – Moreno's personal liability for any avoidable transfers under the "transfer beneficiary" theory of 11 U.S.C. § 550(a)(1).

II. BASIS FOR JURISDICTION

The Trustee and Defendants have agreed that counts 1, 2, 19, 23 and 24 are statutorily "core" claims within the meaning of 28 U.S.C. § 157(b)(2). They have also agreed that counts 3, 6, 7 and 14 are "non-core" claims. See D.I. 288. The Trustee and Defendants dispute whether Counts 11 and 12 are core claims. MGH Holdings has not filed a claim in Green Field's bankruptcy case. Therefore, the Court finds that the Trustee's claims against MGH Holdings for pre-petition breaches of two pre-petition contracts are not "core" claims under 28 U.S.C. § 157(b)(2).

The Trustee consents to the Court's entry of final orders or judgments in connection with this adversary proceeding. The Trustee also asserts that the Court has statutory and constitutional authority to enter final orders or judgments with respect to the core claims at issue in this case. 28 U.S. C. § 157(b)(2) ; In re Millennium Lab Holdings II, LLC , 575 B.R. 252, 261–62 (Bankr. D. Del. 2017) (holding that Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), does not prevent a bankruptcy judge from entering final orders in statutorily core proceedings).

Defendants do not consent to the Court's entry of final orders or judgments with respect to the non-core claims in this adversary proceeding. Defendants have not consented to the Court's constitutional authority to enter final judgment in this matter. They have expressly reserved such rights since Defendants' initial filings in this proceeding. The Court will enter judgment on the core claims and will issue proposed findings of fact and conclusions of law for the non-core claims.

The Court finds that it has both statutory and constitutional authority to enter final orders or judgments with respect to the statutorily core claims at issue in this case. 28 U.S.C. § 157(b)(2) ; Burtch v. Seaport Capital, LLC (In re Direct Response Media, Inc. ), 466 B.R. 626, 644 (Bankr. D. Del. 2012) (adopting the "narrow interpretation" of Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), holding that Stern "only removed a non-Article III court's authority to finally adjudicate one type of core matter, a debtor's state law counterclaim asserted under § 157(b)(2)(C)"). With respect to the non-core claims, these Findings of Fact and Conclusions of Law will constitute proposed findings of fact and conclusions of law under 28 U.S.C. § 157(c)(1) and Federal Rule of Bankruptcy Procedure 9033(a).

III. FINDINGS OF FACT

A. Background

Moreno served as Chief Executive Officer for Dynamic Industries for approximately 10 years, until 2007, when he sold his majority interest to a third-party investor. Trial Tr. 489-92. When he first acquired Dynamic Industries, it performed offshore welding and maintenance on offshore rigs. Id. The business evolved into a full-service fabrication, integration and maintenance business that built, installed and commissioned large-scaled floating production storage and off-loading units all over the world. Id. Thereafter, Moreno transitioned out of his management of Dynamic and formed MMR with two business partners and invested in various businesses in the energy industry. Stipulation No. 11.⁵ One such investment was Hub City Industries, L.L.C ("Hub City").

B. Formation of Green Field

1. Hub City to Green Field

Hub City was a traditional oil and gas well-related service company that was originally formed in 1969. Stipulation Nos. 28-31. Such traditional services included cementing, coiled tubing, pressure pumping, acidizing, nitrogen and other pumping services. Stipulation No. 30. Prior to Moreno's involvement with Hub City, the company had begun working with inventor McIntyre on a new technology that would utilize used turbine engines to power various pumping technologies. Trial Tr. 1517:16 – 1519:24. In December 2010, Hub City began offering hydraulic fracturing services to its customer base. Stipulation No. 31.

Moreno first began investing in Hub City with two of his partners through MMR in 2005 or 2006, when McIntyre first began developing his turbine-powered frac pump. Trial Tr. 1517:16 – 1519:24. At the time, Moreno was still working with Dynamic Industries and...