Deutsche Oel & Gas S.A. v. Energy Capital Partners Mezzanine Opportunities Fund…

Background

Deutsche Oel & Gas S.A. brought four state-law claims against five Energy Capital Partners entities, collectively called ECP: gross negligence, fraudulent inducement, civil conspiracy to commit fraud, and breach of the implied covenant of good faith and fair dealing. Deutsche Oel alleged that ECP increased Furie Operating Alaska, LLC’s debt, obtained increasing control over its operations, retained Ankura Consulting Group, LLC and Scott Pinsonnault in management roles, and mismanaged Furie. Deutsche Oel alleged that this conduct led to Furie’s bankruptcy and destroyed the value of Deutsche Oel’s investment.

Furie filed for Chapter 11 bankruptcy in the Delaware Bankruptcy Court on August 9, 2019. That court approved debtor-in-possession financing from ECP, including releases of Furie’s claims against ECP, and later confirmed a plan of reorganization that also released certain claims and retained jurisdiction over matters connected to the bankruptcy case and plan.

Deutsche Oel filed this action in New York Supreme Court on November 12, 2019. ECP removed it to the Southern District of New York based on federal bankruptcy jurisdiction and moved to transfer it to the District of Delaware for automatic referral to the Delaware Bankruptcy Court. Deutsche Oel moved to remand the case to New York state court.

Motion to Remand

The court denied the motion to remand. It held that the case fell within bankruptcy jurisdiction because the claims had a close connection to Furie’s bankruptcy. The court found “arising in” jurisdiction, meaning jurisdiction over claims that are not created by the Bankruptcy Code but would not exist in the same form outside the bankruptcy context. It also found “related to” jurisdiction because the case could affect the bankruptcy estate through the releases and indemnification provisions at issue.

The court determined that the action was a core bankruptcy proceeding. Although the claims were based on state law and included conduct before Furie’s bankruptcy, the court found that Deutsche Oel also challenged ECP’s conduct during the bankruptcy proceedings, including the debtor-in-possession financing. The court further found that at least the gross-negligence claim was derivative because it alleged harm to Furie’s estate that could affect creditors generally, rather than an injury unique to Deutsche Oel.

The court also held that it had jurisdiction after confirmation of Furie’s bankruptcy plan. It found a close connection between Deutsche Oel’s claims and the bankruptcy because the Delaware Bankruptcy Court had already considered overlapping allegations and because resolving the claims could require interpretation of the bankruptcy court’s orders, releases, indemnification provisions, and plan. The plan expressly retained jurisdiction over related disputes.

The court declined both mandatory and permissive abstention. Mandatory abstention did not apply because the court found that the action involved more than “related to” jurisdiction. The court also rejected discretionary abstention and equitable remand, reasoning that the state-law claims were not unusually complex, the New York state court had spent little time on the case, and remand could interfere with efficient administration of Furie’s bankruptcy estate.

Motion to Transfer

The court granted ECP’s motion to transfer under 28 U.S.C. § 1412. It found that the action could have been brought in Delaware because the Delaware federal court and the Delaware Bankruptcy Court had jurisdiction connected to the pending Furie bankruptcy.

The court considered the parties’ competing interests. Deutsche Oel’s selection of New York under the Pledge Agreement’s forum-selection clause weighed against transfer, but the court found that clause was not decisive in a core bankruptcy proceeding. The locations of the operative facts, parties, witnesses, and evidence did not favor either forum, and the court found no significant difference in the courts’ ability to apply the relevant law.

The interests of justice and trial efficiency strongly favored transfer. The Delaware Bankruptcy Court had already held hearings involving overlapping allegations, heard testimony from eight witnesses, approved a settlement of related motions, and reviewed allegations concerning ECP, Ankura, and Furie’s management. It was also best positioned to interpret its own financing order and Furie’s confirmed plan and to address any indemnification issues affecting the bankruptcy estate.

Disposition

Judge Ronnie Abrams denied Deutsche Oel’s motion to remand and granted ECP’s motion to transfer. The court directed that the case be transferred to the U.S. District Court for the District of Delaware for automatic referral to the Delaware Bankruptcy Court and waived the seven-day waiting period so the transfer could occur without delay. The opinion addressed jurisdiction, abstention, remand, and venue; it did not decide the merits of Deutsche Oel’s four state-law claims.