In re TPC Grp.

In re TPC GROUP INC., et al., Debtors.

No. 22-10493 (CTG)

United States Bankruptcy Court, D. Delaware

February 22, 2023

Chapter 11

RELATED DOCKET NO. 1334

MEMORANDUM OPINION

CRAIG T. GOLDBLATT UNITED STATES BANKRUPTCY JUDGE

The reorganized debtors own and operate a petrochemical business.^[1] In November 2019, two of the debtors' plants, located in Port Neches, Texas, exploded, causing property damage and personal injury to nearby residents. Various of the residents brought prepetition lawsuits against the debtors and several third parties, including the debtors' equity sponsors, in state court in Texas.^[2]

The debtors' confirmed plan of reorganization embodied a global settlement. Under that settlement, $30 million was set aside to pay the claims of general unsecured creditors including those of the tort plaintiffs. The debtors released any causes of action their estates may have had against the Supporting Sponsors. That release is backed by an injunction against the assertion of such a released cause of action. While the tort plaintiffs granted consensual third-party releases to some non-debtor parties, whatever direct claims the tort plaintiffs may have against the Supporting Sponsors are not subject to that release. The tort plaintiffs remain free to pursue them.

The dispute now before the Court presents the question whether the claims the tort plaintiffs intend to pursue against the Supporting Sponsors are claims that belonged to the debtors' estates (and therefore are released and enjoined), or are claims that belong to the plaintiffs themselves, such that they may be pursued in the MDL litigation. At the time of confirmation, the tort plaintiffs and the Supporting Sponsors identified that issue as one over which they disagreed. The plan expressly provides that this Court would resolve it after confirmation.

The dispute between the parties is, in substantial part, a dispute about how to characterize the complaint the plaintiffs seek to pursue in state court. The plaintiffs contend that the complaint asserts a claim for negligent undertaking that seeks to hold the Supporting Sponsors liable only for their own "independent" tortious conduct. The Supporting Sponsors dispute that characterization contending that the complaint is fundamentally one for veil piercing in which the court is being asked to disregard the corporate separateness between the debtors and the Supporting Sponsors and hold the Supporting Sponsors liable for the debtors' tortious conduct. The Supporting Sponsors contend that veil-piercing actions are estate causes of action, and that the claim the plaintiffs seek to pursue is therefore barred by the plan injunction.

In fairness, the complaint - both the Fifth Amended version (which is currently operative) and the proposed Sixth Amended version (which plaintiffs propose to file, and which removes the debtors as defendants, among other revisions) - contains elements of both.^[3] For the reasons described below, the Court concludes that in the context of this case, any claim to pierce the corporate veil would be an estate cause of action that has been settled and released. On the other hand, a claim that alleges that the Supporting Sponsors had sufficient substantive involvement in the operation of the debtors' business that they undertook responsibility for managing the safety function and were negligent in the manner in which they carried it out is a direct claim against the Supporting Sponsors that is not affected by the debtors' settlement or the plan injunction.

The challenge presented by the current motion is that while the tort plaintiffs argue that, in substance, their proposed Sixth Amended Complaint asserts only claims that are for negligent undertaking, the complaint nevertheless asserts that the "corporate separateness should be disregarded."^[4] Indeed, it appears that the plaintiffs have endeavored, in the complaint, to say as much as they could about efforts to "hide behind the corporate veil" while retaining the ability to maintain that the action is not really a claim for veil piercing that would be barred by this Court's injunction.

In the Court's view, however, the Sixth Amended Complaint crosses the line. While the complaint does assert claims for negligent undertaking that may proceed without running afoul of the plan injunction, fairly read, Count VIII of the Sixth Amended Complaint is simply a claim for ordinary veil piercing. Other counts fall somewhere in between, leaving it unclear whether the alleged liability of the Supporting Sponsors is based on their independent tortious conduct as opposed to a form of vicarious liability as the debtors' alter ego.

To comply with the plan injunction, this ambiguity must be removed. Count VIII must be dropped and the various assertions about veil piercing and hiding behind the corporate shield must be stripped out. The only claims plaintiffs may assert against the Supporting Sponsors are those that are based on their own allegedly tortious conduct. Plaintiffs are accordingly directed to submit to this Court a revised complaint that complies with the plan injunction as set forth herein. The Supporting Sponsors may, within ten days of such a filing, submit a letter brief identifying any portion of the complaint that they contend fails to comply with the terms of this ruling. The Court will thereupon determine whether the proposed complaint comports with the terms of the plan injunction.

The Court emphasizes that its role is simply to police the enforcement of the injunction reflected in the confirmed plan of reorganization (which the tort plaintiffs themselves supported). Neither this ruling nor any subsequent determination that a further revised complaint may (or may not) be filed purports to venture any opinion about whether the remaining claims for negligent undertaking or otherwise are valid or invalid under Texas law. Those merits issues are left entirely, as they must be, to the Texas state court.^[5]

Factual and Procedural Background

1. The MDL litigation

For purposes of the motion before this Court, the relevant pleading is the proposed Sixth Amended Complaint, which the plaintiffs contend has been amended so that the debtors are dropped as defendants and the terms of the plan injunction are otherwise respected.

Eight of the counts in that complaint assert claims against one or more of the Supporting Sponsors. Count II for negligence per se; Count III for negligence, gross negligence, and intentional trespass; Count IV for negligence and/or gross negligence; Count V for nuisance; Count VI for negligence, misrepresentations, and fraud; Count VII for gross negligence; Count VIII for what purports to be "direct liability"; and Count XI for negligent misrepresentation and failure to warn.

For purposes of the motion now before the Court, these counts fall broadly into three categories. First, Counts VI and VII include (although among other things) claims that expressly assert that certain Supporting Sponsors are liable on a theory of negligent undertaking.

Second, Count VIII, despite being labeled "Direct Liability of the Owners and Sawgrass Holdings GP LLC," is in substance a claim for veil piercing. While the count does make reference to defendants' alleged "independent torts" and their "liability for their own wrongdoing," this count nowhere sets forth what those alleged torts are. Instead, the count emphasizes that the "distinct corporate identity" of the defendants should not shield them from liability. Defendants should not be permitted, as Count VIII asserts, to "rely upon the [separate] existence of [distinct legal entities] … to escape the imposition of … obligations … for which they should be held liable."^[6] As far as this Court can discern, this count asserts no claim for a specific independent tort. To the extent it might add anything to the other claims in the complaint, the only thing that it can be adding is a claim that the Supporting Sponsors should be held vicariously liable for the debtors' alleged tortious conduct.

Third, the remaining counts do not specify which conduct gives rise to the claims. These Counts therefore presumably rely on a footnote in the complaint asserting that:

Upon information and belief, one or more [Supporting Sponsors] participated and/or otherwise directed or were associated with the acts and/or omissions of TPC described herein. Accordingly, all the allegations against TPC herein are pled against the [Supporting Sponsors]. Stated differently, [the Supporting Sponsors] would be liable for Plaintiffs' damages separate and apart from the conduct of TPC, as they were a proximate cause of the explosions and releases and there can be more than one proximate cause of the same.^[7]

2. Relevant plan provisions

When the debtors filed for bankruptcy, the tort plaintiffs sought an order from this Court clarifying that the automatic stay did not bar proceedings in the MDL litigation from continuing against the non-debtor Supporting Sponsors.^[8] The Supporting Sponsors opposed this motion, arguing that the automatic stay prohibits parties from exercising control over property of the estate under 11 U.S.C. § 362(a)(3).^[9] According to the Supporting Sponsors, the tort plaintiffs' claims against them necessarily rested on a theory of alter-ego liability, a claim that could have been brought by the debtors and therefore belonged to the estate.^[10]

Before that motion was brought to the Court for a hearing, however the parties reached the settlement that was later embodied in the plan of reorganization. The parties thus agreed to adjourn the tort plaintiffs' motion. Section 10.7(a) of the debtors' plan provides for releases by the debtors of all claims and causes of action...