Paragon Litig. Trust v. Noble Corp. PLC (In re Paragon Offshore PLC)

588 B.R. 735

IN RE: PARAGON OFFSHORE PLC, et al., Debtors.

Paragon Litigation Trust, Plaintiff,

v.Noble Corporation PLC, Noble Corporation Holdings Ltd, Noble Holding International (Luxembourg) S.A.R.I., Noble FDR Holdings Limited, Ashley Almanza, Julie H. Edwards, Gordon T. Hall, Jon A. Marshall, James A MacLennan, Mary P. Ricciardello, Julie J. Robertson, and David Williams, Defendants.

Case No.: 16-10386 (CSS)

Adv. Proc. No.: 17-51882(CSS)

United States Bankruptcy Court, D. Delaware.

Signed August 6, 2018

SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP, Anthony W. Clark, Stephen J. Della Penna, One Rodney Square, P.O. Box 636, Wilmington, DE 19899-0636 and George A. Zimmerman (Argued), Lauren E. Aguiar, Four Times Square, New York, NY 10036-6522 and Wallis M. Hampton, 1000 Louisiana Street, Suite 6800, Houston, TX 77002-5026, Counsel for the Defendants

YOUNG, CONAWAY STARGATT & TAYLOR, LLP, Pauline K. Morgan, Joel A. Waite, Jaime Luton Chapman, Michael S. Neiburg, 1000 North King Street, Wilmington, DE 19801 and JONES DAY, Bruce Bennett, James O. Johnston, 555 South Flower Street, 50^th Floor, Los Angeles, CA 90071 and Gregory M. Shumaker, David S. Torborg (Argued), 51 Louisiana Avenue, N.W., Washington, DC 20001 and Jennifer L. Del Medico, Genna L. Ghaul, 250 Vesey Street, New York, New York 10281, Counsel to Paragon Litigation Trust

OPINION ¹

Sontchi, C.J.

INTRODUCTION²

Before the Court is Defendants' Motion to Dismiss in Favor of Arbitration and to Stay the Proceedings over certain claims that allegedly occurred as part of the Spin-Off of Paragon and Noble.

There can be no question that there is a strong, indeed overwhelming, federal policy in favor of arbitration. The Supreme Court has repeatedly said so, as recently as a few months ago.³ Yet even the federal policy in favor of arbitration has its limits. This is such a case. Here certain officers and directors of parties to a contract containing a broad Arbitration Provision seek to require the Trust to pursue through arbitration its breach of fiduciary duty claims against those officers and directors—who are not signatories to the contract containing the Arbitration Provision. Indeed, these Paragon and Noble Directors are expressly excluded from the Arbitration Provision and included in another part of the same contract. Where fiduciaries are so expressly removed from a contract's Arbitration Provision, the Court declines to extend the policy in favor of arbitration to include these fiduciaries of the related entities.

At the same time, the Trust's claim for unjust enrichment against the Corporate Defendants that signed the relevant Agreements must proceed through arbitration. The arbitration of the unjust enrichment claim will proceed concurrently with the litigation in this Court with no stay of either proceeding being granted.

JURISDICTION & VENUE

The Court has jurisdiction over the Motion pursuant to 28 U.S.C. § 1334 as a non-core proceeding under § 157(c)(1). Venue is also proper before the United States Bankruptcy Court for the District of Delaware under 28 U.S.C. §§ 1408 and 1409. The Court has the judicial authority to enter a final order.

STATEMENT OF FACTS

A. Procedural Background

On February 14, 2016, Paragon Offshore plc ("Paragon") and affiliated entities (collectively with Paragon, the "Debtors") filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code. The Court subsequently entered an order for the joint administration of these cases.⁴

On June 7, 2017, the Court entered an order confirming the Fifth Joint Chapter 11 Plan of Paragon Offshore plc and its Affiliated Debtors (the "Plan"). Among other things, the Plan created the Paragon Litigation Trust (the "Trust"), which was to pursue certain "Noble Claims" as defined under the Plan.⁵

The Trust went on to commence this adversary proceeding in December 2017 by filing a complaint (the "Complaint") alleging certain claims, all of which arose out of the 2014 spin-off of Paragon from Noble Corporation plc ("Noble").⁶ The Complaint encompasses claims against Noble, Paragon Directors, and Noble Directors (each defined infra and, together, the "Defendants").

On February 15, 2018, Defendants filed their Motion to Dismiss in Favor of Arbitration and to Stay the Proceeding (the "Motion") and a supporting brief.⁷ The Trust filed a brief in opposition in March, and Defendant filed its reply in May.⁸ The Court held oral argument on the Motion on June 1, 2018.⁹ The issue is now fully briefed and ripe for review.

B. Factual Background

i. Counts Sought in Motion for Arbitration

The dispute described in the Complaint centers on alleged misconduct associated with the corporate spin-off of Debtors from Noble (the "Spin-Off"). In particular, Counts VI-VIII of the Complaint, alleging claims of (1) breach of fiduciary duty by two former Paragon Directors, (2) aiding and abetting breach of fiduciary duty against certain current and former Noble Directors, and (3) unjust enrichment against the Corporate Defendants. The Complaint also contains counts of actual and constructive fraudulent transfer and recharacterization of debt as equity against the Corporate Defendants.

The Motion asks the Court to dismiss these claims in favor of arbitration, while staying remaining issues. The Court reviews the facts alleged for each of these claims in further detail below.

a. Count VI: Breach of Fiduciary Duties

In Count VI, the Complaint alleges that Defendants James A. MacLennan ("MacLennan") and Julie J. Robertson ("Robertson," together with MacLennan the "Paragon Directors") breached fiduciary duties of loyalty, care, good faith, and candor they owed to Paragon, and thus caused Paragon to suffer significant damages.

The Complaint alleges that MacLennan served as Noble's Chief Financial Officer until February 2016, and simultaneously served as the sole member of Paragon's board of directors from Paragon's inception until July 31, 2014, the date of the Spin-Off. Robertson is also alleged to have been a member of Paragon's board of directors from shortly before the Spin-Off through 2016, while simultaneously serving as Noble's Executive Vice President.

b. Count VII: Aiding and Abetting Breach of Fiduciary Duties

In Count VII, the Complaint alleges that David Williams ("Williams") was Chairman of Noble's board of directors, as well as Noble's President and Chief Executive Officer. Ashley Almanza, Michael A. Cawley, Lawrence J. Chazen, Julie H. Edwards, Gordon T. Hall, Jon. A. Marshall, and Mary Ricciardello are all alleged to have been additional members of Noble's board of directors (together with Williams, the "Noble Directors").¹⁰

The Trust alleges that the Noble Directors knew that MacLennan and Robertson owed fiduciary duties to Paragon, and aided in breaching those duties in the context of the Spin-Off.

c. Count VIII: Unjust Enrichment

In Count VIII, the Trust alleges that Noble, Noble Corporation Holdings Ltd., Noble Corporation, Noble Holding International (Luxembourg) S.á.r.l. ("NHIL 1"), Noble Holding International (Luxembourg NHIL) S.á.r.l. ("NHIL 2"), and Noble FDR Holdings Limited (together, the "Corporate Defendants") unjustly received value from certain note payments from the Spin-Off made directly to Defendants NHIL 1, NHIL 2, and Noble FDR Holdings Limited.

The Trust further alleges that Noble Corporation Holdings Ltd., NHIL 1, NHIL 2, and Noble FDR Holdings Limited are all wholly-owned subsidiaries of Noble and mediate transferees of and/or entities for whose benefit the note payments were made. While the Corporate Defendants were unjustly enriched, the Trust alleges that Paragon and its subsidiaries were unjustly deprived of cash, credit, and other things of value.

ii. The Agreements and Arbitration Provision

The Complaint alleges that the Spin-Off was "governed by five agreements, each dates as of July 31, 2014, between Noble and Paragon and on behalf of their respective subsidiaries or ‘Groups’ (the ‘Noble Group’ and ‘Paragon Group’) ..."¹¹ The five agreements referenced in the Complaint and by Defendants in support of their Motion include the Master Separation Agreement ("MSA"), Tax Sharing Agreement, Transition Services Agreement, Brazilian Transition Services Agreement, and Employee Matters Agreement (together with the MSA, the "Agreements").¹²

The MSA was entered into by Corporate Defendant Noble Corporation, a Cayman Islands company, and Paragon, a company organized under the laws of England and Wales, for themselves and as representatives of the larger Noble and Paragon Groups.¹³ The term "Party" or "Parties" in the MSA refers to either of the signatory entities to the MSA. The "Noble Group," as defined by the MSA, includes the following:

Parent [Noble], all Persons that are Subsidiaries of Affiliates of Parent other than a member of the Paragon Group on the Distribution Date and each Person that becomes a Subsidiary of Parent after the Distribution Date. For purposes of Section 6.12, Noble Group shall include directors and officers of the Noble Group.¹⁴

The definition for the "Paragon Group" similarly tracks the definition supra :

"Paragon Group" means Paragon and all Persons that are Subsidiaries of Paragon on the Distribution Date, including the Subsidiaries set forth in Exhibit 21 to the Form 10, and each Person that becomes a Subsidiary of Paragon after the Distribution Date. For purposes of Section 6.12, Paragon Group shall include directors and officers of the Paragon Group.¹⁵

The Agreements further incorporate an arbitration provision extensively set out in Article V of the MSA (the "Arbitration Provision").¹⁶ The Arbitration Provision states, in relevant part:

5.1 Agreement to Arbitrate. Except as otherwise specifically provided in any Ancillary Agreement, the procedures for discussion, negotiation and arbitration set forth in this Article V shall apply to any dispute, controversy or claim (whether sounding in contract, tort or otherwise) that arises out of or relates to, this Agreement or

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