Southstar Holdings, LLC v. Crest Energy Partners GP, LLC (In re Crescent Trading LLC)

654 B.R. 246

IN RE: CRESCENT TRADING LLC, Debtor.

Southstar Holdings, LLC, Plaintiff, v. Crest Energy Partners GP, LLC, et al., Defendants.

Case No: 22-31366

Adversary No. 22-03215

United States Bankruptcy Court, S.D. Texas, Houston Division

Signed September 27, 2023

Douglas A. Allison, Attorney at Law, Corpus Christi, TX, for Plaintiff.

Don Fogel, Fogel & McEvily LLP, Houston, TX, Timothy Dennis Riley, Riley Law Firm, Houston, TX, for Defendants Crest Energy Partners GP, LLC, Crescent Trading LLC, Crest Gathering LLC, Crown Financial Oil & Gas, L.L.C., Richard Tribe.

J. Michael Myers, Naman Howell Smith & Lee PLLC, San Antonio, TX, Patricia Williams Prewitt, Law Office of Patricia Williams Prewitt, Taylor, TX, William Allen Gage, Jr., Melissa Nicholson Sternfels, Shackelford, Bowen, McKinley & Norton, LLP, Houston, TX, for Defendant Kinder Morgan, Inc.

ORDER GRANTING KINDER MORGAN, INC.'S MOTION FOR SUMMARY JUDGMENT

(RE: Docket No. 33)

Christopher Lopez, United States Bankruptcy Judge

These parties have been litigating for over nine years in Texas state court. The litigation arises from the sale of a pipeline system involving two Kinder Morgan subsidiaries and Debtors Crest Gathering LLC and Crescent Trading LLC.¹ Southstar Holdings, LLC believes it is entitled to a broker/finder fee but was improperly cut out of the deal by the defendants.

Crest Gathering and Crescent Trading started bankruptcy cases in 2022, and the lawsuit was eventually removed to this Court. Kinder Morgan seeks summary judgment on Southstar's claims for tortious interference with contracts. Southstar wants this Court to defer to prior state court denials of summary judgment. After careful consideration, summary judgment is warranted and the Court grants it.

Jurisdiction

This Court has jurisdiction under 28 U.S.C. § 1334(b). This is a core proceeding under 28 U.S.C. § 157(b). The parties' express and implied consent also provides this Court constitutional authority to enter a final judgment. See Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 678-83, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015); Kingdom Fresh Produce, Inc. v. Stokes Law Off., L.L.P. (In re Delta Produce, L.P.), 845 F.3d 609, 617 (5th Cir. 2016).

Background

In 2012, Carl Beach, through an entity named Eagle Ford Midstream, tried to purchase a pipeline system owned by Copano Field Services, GP, LLC and CPG LP Holdings, LLC (together "Copano"). But it never happened.

In 2013, Kinder Morgan acquired Copano. That same year, Southstar, which is also owned by Beach,² entered into two agreements with Crest Energy Partners, LP to facilitate the evaluation of a possible transaction about the Copano pipeline system. First was an April 2013 confidentiality agreement ("CA").³ The CA defines Crest Energy as "Buyer" and Southstar as "Seller" and provides that the parties agreed to share "Buyer's Evaluation Material" and "Seller's Evaluation Material."⁴ Parties could only share confidential information with "directors, officers, employees, advisors, and investors who need to know the content of the information" and agreed to be bound by the terms of the CA.⁵

The CA also provides that no party has to make a proposal, enter into negotiations, or continue any evaluation about a business transaction with the other party.⁶ But Crest Energy and its affiliates, subsidiaries, or representatives could not "contact with, solicit for purchase, or contract for service" the properties Southstar provided to Crest Energy without Southstar's written consent until April 2014.⁷

The second agreement between Southstar and Crest Energy is a letter of intent executed in June 2013 ("Southstar-Crest LOI").⁸ This LOI provides that Southstar and Beach, collectively as "Broker," are interested in purchasing a pipeline system from Copano Energy, LLC, as "Seller," for Crest Energy.⁹

The LOI contains non-binding and binding sections. Article I is non-binding. It "merely constitutes a statement of the mutual intentions of the parties with respect to the proposed acquisition . . . ."¹⁰ The matters described in Article I also depended on the "negotiation, execution, and delivery of a definitive agreement" between Copano Energy and Crest Energy.¹¹ The non-binding terms outline a proposed sale of a pipeline system under which Crest Energy would pay Copano Energy and Southstar $4 million.¹² If $4 million was a final agreed upon amount, Copano Energy would keep $2.7 million and Southstar would keep $1.3 million as a broker fee.¹³ A definitive agreement, however, could contain terms different from those in Article I.¹⁴ A proposed closing for the proposed asset sale would occur by August 1, 2013.¹⁵

Article II is binding, but it purports to bind Copano Energy—a non-signatory party.¹⁶ Copano Energy was supposed to provide Crest Energy access to its books and records and allow Crest Energy to communicate with its key employees and suppliers.¹⁷ And until a definitive agreement was signed, Copano Energy (again, a non-signatory party) could not enter into any transactions outside of the ordinary course about the pipeline without Crest Energy's consent.¹⁸ It also provides that Copano Energy would not solicit or entertain inquiries about the assets with any other party until August 1, 2013.¹⁹ Finally, Article 2.6 provides that "without prejudice to the non-binding nature of Article I," the LOI could terminate at any time by mutual consent between Southstar and Crest Energy or by any party after August 1, 2013 if the proposed agreement the LOI contemplates was not executed by Crest Energy and Copano Energy.²⁰

Southstar tried to lock up Copano in a separate June 2013 letter of intent ("Southstar-Copano LOI").²¹ This LOI outlines the terms of a separate non-binding potential transaction where Southstar would purchase partnership interests in Copano for $2.7-$3 million.²² Copano never signed this LOI. Kinder Morgan didn't either. But analyzing the non-binding terms of both LOIs, Southstar would purchase the partnership interest in Copano for $2.7 million to $3 million and then flip it to Crest Energy for $4 million.

The potential transactions contemplated in the LOIs never occurred. Instead, Copano sold its pipeline system not to Crest Energy, but to Crest Gathering and Crescent Trading in May 2014. Southstar received no broker/finder fee from that sale. So it started a Texas state court action.²³ Southstar asserts breach of contract, tortious interference with contracts, fraud, civil conspiracy, and alter ego claims against the Crest Defendants.²⁴ It also asserts tortious interference claims against Kinder Morgan based on the CA, the Southstar-Crest LOI, and the Southstar-Copano LOI.²⁵ Southstar claims that Crest Gathering LLC and Crescent Trading LLC were created to purchase the pipeline system and intentionally avoid these agreements and also to avoid paying Southstar its fee.²⁶

Kinder Morgan moved for partial summary judgment in the state court action on Southstar's tortious interference claim relating to the CA.²⁷ But the state court judge denied it.²⁸ In 2018, the Crest Defendants also moved for summary judgment on all claims, and Kinder Morgan filed a joinder.²⁹ The state court denied the summary judgment motion, too.³⁰

Crest Gathering and Crescent Trading filed bankruptcy cases in 2022.³¹ Kinder Morgan removed the Texas state court lawsuit to this Court.³² Kinder Morgan now seeks summary judgment on Southstar's tortious interference claims as it relates to all three agreements (the Southstar-Copano LOI, the Southstar-Crest LOI, and the CA).³³

Southstar did not file a timely response to the summary judgment motions and the Court denied leave to file a very late response for the reasons stated on the record at the summary judgment hearing. Southstar was, however, permitted to argue. And it asserted that summary judgment should be denied because the state court previously denied a similar request.³⁴ Southstar also asked the Court to take judicial notice of the Texas state court record, which this Court did.

Legal Standard

I. Motion for Summary Judgment

Federal Rule of Bankruptcy Procedure 7056 incorporates Federal Rule of Civil Procedure 56 in adversary proceedings. Fed. R. Bankr. P. 7056. A movant is entitled to summary judgment by showing "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Material facts are those facts "that might affect the outcome of the suit under the governing law." Smith v. Brenoettsy, 158 F.3d 908, 911 (5th Cir. 1998) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

A defendant may seek summary judgment because the "evidence in the record would not permit the nonmovant to carry its burden of proof at trial." Brenoettsy, 158 F.3d at 911. The burden then shifts to the nonmovant to show that summary judgment is inappropriate. Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998) (citing Lavespere v. Niagara Mach. & Tool, Inc., 910 F.2d 167, 178 (5th Cir. 1990)).

In determining whether summary judgment is appropriate, all inferences are drawn in the nonmovant's favor. See Harville v. City of Houston, Mississippi, 945 F.3d 870, 874 (5th Cir. 2019). Factual controversies are resolved in favor of the nonmovant "only when there is an actual controversy—that is, when both parties have submitted evidence of contradictory facts." Laughlin v. Olszewski, 102 F.3d 190, 193 (5th Cir. 1996) (quoting McCallum Highlands, Ltd. v. Washington Cap. Dus, Inc., 66 F.3d 89, 92 (5th Cir. 1995)). A nonmovant may successfully oppose summary judgment by producing "significant probative evidence" that there is an issue of material fact to warrant a trial. Cap. One Bank v. Zeman (In re Zeman), 347 B.R. 28, 31 (Bankr. S.D. Tex. 2006). "This burden is not met by mere reliance on the allegations or denials in the non-movant's pleadings." Id. (citing Morris, 144 F.3d at 380). Without proof,...