Swiss Re Corp. Sols. Am. Ins. v. Fieldwood Energy III, L.L.C. (In re Fieldwood Energy LLC)

93 F.4th 817

In the MATTER OF FIELDWOOD ENERGY LLC, Debtor,

Swiss Re Corporate Solutions America Insurance Company,

formerly known as North American Specialty Insurance Company;

Lexon Insurance Company; Ironshore Indemnity Incorporated;

Ironshore Specialty Insurance Company, Appellants, v. Fieldwood Energy III, L.L.C.; Fieldwood Energy Offshore L.L.C.;

Fieldwood Energy Incorporated; GOM Shelf LLC;

FW GOM Pipeline Incorporated, Appellees.

No. 23-20104

United States Court of Appeals, Fifth Circuit

FILED February 20, 2024

Appeal from the United States District Court for the Southern District of Texas, USDC No. 4:21-CV-2201, George C. Hanks, Jr., U.S. District Judge

Kim Bernard Battaglini (argued), Forman Watkins & Krutz, L.L.P., Houston, TX, for Appellants.

Jessica Liou (argued), Weil, Gotshal & Manges, L.L.P., New York, NY, Alfredo Rey Perez, Weil, Gotshal & Manges, L.L.P., Houston, TX, Zachary Tripp, Weil, Gotshal & Manges, L.L.P., Washington, DC, for Appellees.

Before Southwick, Engelhardt, and Wilson, Circuit Judges.

Leslie H. Southwick, Circuit Judge:

Fieldwood Energy LLC entered bankruptcy in 2020. The resulting reorganization plan for the company was the product of a complex negotiation process with numerous parties. The bankruptcy court's confirmation order stripped subrogation rights from some of those who had issued surety bonds to the debtors. These sureties are the appellants. They challenged the loss of subrogation rights at the district court. Rather than address the sureties' challenges on the merits, the district court held their appeal was statutorily and equitably moot. The primary question on appeal is whether a recent Supreme Court decision alters the landscape around statutory mootness. Any change does not affect this appeal. AFFIRMED.

FACTUAL AND PROCEDURAL BACKGROUND

Fieldwood Energy LLC and its affiliates (the "Debtors") were previously among the largest oil and gas exploration and production companies operating in the Gulf of Mexico. Declining oil prices, the COVID-19 pandemic, and billions of dollars in decommissioning obligations caused Fieldwood to file for chapter 11 bankruptcy in August 2020. Negotiations began in March 2020 with creditors and other entities, including the U.S. Department of Justice and the U.S. Department of the Interior (collectively, the "Government"). A reorganization plan was finalized 18 months later.

First, some background on one part of the Debtors' financial burdens. Oil and gas companies operating on the Outer Continental Shelf have decommissioning obligations. 30 C.F.R. §§ 250.1701-03. A company is required, once relevant facilities are no longer used, to take such measures as plugging wells, decommissioning pipelines, removing platforms, and clearing the seafloor of obstructions created by the company's operations. § 250.1703. A key objective of the Debtors' reorganization plan was to provide a means to satisfy their extensive decommissioning obligations. The plan required a complex series of transactions, including: (1) the sale of some of the Debtors' oil and gas assets and equity interests for approximately $1.03 billion (the "Credit Bid Sale"); (2) divisive mergers of Fieldwood after the consummation of the Credit Bid Sale, with the allocation of some oil and gas assets among the resulting entities; and (3) the abandonment of other oil and gas assets after reaching agreements with the Government.

One significant disagreement during the reorganization plan's complex development was whether the subrogation rights of some companies (the "Sureties") that had issued surety bonds to the Debtors would survive. The bankruptcy court eventually determined they would not. The court found that the Credit Bid Sale was "unlikely to close" if it were modified as the Sureties sought. The success of the Credit Bid Sale was itself key to securing the Government's approval for the reorganization plan. The Government withheld a potential objection based on environmental grounds in large part because of the plan's increased allocation of responsibility for the oil and gas assets. The bankruptcy court would have considered any such objection a "veto [of] the Plan on an environmental" basis.

In its Confirmation Order, the bankruptcy court provided that the Credit Bid Sale and allocation of assets to the new entities would be "free and clear" of liens, claims, encumbrances, and other such interests pursuant to Section 363(f) of the Bankruptcy Code. It further stated that the Sureties "shall not be entitled, under any circumstances, to claim a right of subrogation against the Debtors."

The Sureties sought, but failed to obtain, a stay of the Confirmation Order from the bankruptcy court. The reorganization plan went into effect on August 27, 2021. As the Sureties concede, the plan has been substantially consummated.

At the district court, the Sureties sought to reverse the part of the bankruptcy court's Confirmation Order dealing with the sale of the Debtors' assets free and clear of their subrogation rights. The Sureties argued that (1) the relevant provisions of the Confirmation Order are "ambiguous, incongruous, [and] contradictory," and that (2) the bankruptcy court acted beyond its authority in stripping them of their subrogation rights. Rather than reach the merits of the Sureties' challenges, the district court held that the challenges were statutorily moot under Section 363(m) of the Bankruptcy Code and equitably moot under this circuit's caselaw.

The Sureties appealed and argue for reversal and a remand to the district court to consider their challenges.

DISCUSSION

This court "reviews the decision of a district court, sitting as an appellate court, by applying the same standards of review to the bankruptcy court's findings of fact and conclusions of law as applied by the district court." In re Energytec, Inc., 739 F.3d 215, 218 (5th Cir. 2013) (quoting Carrieri v. Jobs.com Inc., 393 F.3d 508, 517 (5th Cir. 2004)). Findings of fact are reviewed for clear error, and questions of law are reviewed de novo. In re Walker Cnty. Hosp. Corp., 3 F.4th 229, 233-34 (5th Cir. 2021). Mixed questions of law and fact are reviewed de novo. Id. at 234.

To prevail on their appeal before this court, the Sureties must show their challenge is neither statutorily nor equitably moot. We resolve this appeal on the grounds that the district court correctly held the appeal was statutorily moot. We will not reach that court's alternative holding that the challenge was equitably moot as well.

We start with the controlling statutory text from which mootness arises. Section 363(m) of the Bankruptcy Code sets boundaries on a reviewing court's ability to modify or reverse certain sales and leases:

The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.

11 U.S.C. § 363(m). That statutory subsection prohibits "the appellate reversal of an order to sell property or obtain post-petition financing unless such orders were stayed pending appeal." In re Pac. Lumber, 584 F.3d 229, 240 n.15 (5th Cir. 2009). Section 363(m) "plainly contemplates" that an appellate court may modify a covered authorization, but "the court's exercise of power may not accomplish all the appellant wishes." MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288, 299, 143 S.Ct. 927, 215 L.Ed.2d 262 (2023). The limits on reversal or modification imposed by Section 363(m) serve the interests of finality and certainty, and by extension, encourage bidding for estate property. "If deference were not paid to the policy of speedy and final bankruptcy sales, potential buyers would not even consider purchasing any bankrupt's property." In re Sneed Shipbuilding, Inc., 916 F.3d 405, 409 (5th Cir. 2019) (quoting In re Bleaufontaine, Inc., 634 F.2d 1383, 1389 n.10 (5th Cir. 1981)).

The Sureties give three reasons why their appeal is not subject to Section 363(m)'s limitations. First, they argue that a 2023 Supreme Court opinion has changed how we should understand Section 363(m). See generally MOAC Mall, 598 U.S. 288, 143 S.Ct. 927. Second, they assert Section 363(m) does not apply because they sought a stay in the bankruptcy court. Third, they insist Section 363(m) does not apply because the provisions they challenge were not integral to the sale of the Debtors' assets. We address the arguments in that order.

a. MOAC Mall

1. Did the Supreme Court narrow Section 363(m)?

In an appeal by a creditor in bankruptcy proceedings involving Sears, Roebuck and Co., the Supreme Court recently held that Section 363(m) is not a jurisdictional provision, meaning — among other things — that it can be waived. MOAC Mall, 598 U.S. at 297, 143 S.Ct. 927. The Sureties argue that in holding Section 363(m) is nonjurisdictional, the Supreme Court fundamentally narrowed the provision's ability to bar relief on appeal. They relatedly claim that the district court in this case treated Section 363(m) as jurisdictional.

We will examine the Supreme Court's opinion for its potential impact here. The debtor in possession had sold some assets pursuant to Section 363(b). MOAC Mall, 598 U.S. at 292, 143 S.Ct. 927. The purchaser of those assets and one of the debtor's lessors became involved in a dispute. Id. at 293, 143 S.Ct. 927. The purchaser prevailed in bankruptcy court, and the lessor indicated it would appeal. Id. at 293-94, 143 S.Ct. 927. The purchaser informed the bankruptcy court it would not invoke Section 363(m) in the lessor's appeal. Id. at 294, 143 S.Ct. 927. The bankruptcy court denied the lessor a stay pending appeal and "emphasized that [the purchaser] Transform had explicitly represented that it would not invoke § 363(...