Court Opinion

ID: 9942431
Source: CourtListenerOpinion
Date Created: 2024-02-21 01:00:50.869687+00
Date Added: 2024-06-11T13:48:04.939926
License: Public Domain

Case: 23-20104   Document: 60-1     Page: 1    Date Filed: 02/20/2024

      United States Court of Appeals
           for the Fifth Circuit
                                                             United States Court of Appeals
                                                                      Fifth Circuit

                         ____________                               FILED
                                                             February 20, 2024
                          No. 23-20104                         Lyle W. Cayce
                         ____________                               Clerk

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,

                               versus

Fieldwood Energy III, L.L.C.; Fieldwood Energy
Offshore L.L.C.; Fieldwood Energy Incorporated; GOM
Shelf LLC; FW GOM Pipeline Incorporated,

                                                            Appellees.
            ______________________________

            Appeal from the United States District Court
                for the Southern District of Texas
                     USDC No. 4:21-CV-2201
            ______________________________
Case: 23-20104       Document: 60-1       Page: 2    Date Filed: 02/20/2024

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.

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§ 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

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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.

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          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 (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. 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

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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. 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. The purchaser of those assets and one
of the debtor’s lessors became involved in a dispute. Id. at 293. The
purchaser prevailed in bankruptcy court, and the lessor indicated it would
appeal. Id. at 293–94. The purchaser informed the bankruptcy court it would
not invoke Section 363(m) in the lessor’s appeal. Id. at 294. 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(m) against [lessor] MOAC’s appeal.” Id. The lessor was successful on
appeal to district court; the purchaser then sought rehearing and, forsaking
its earlier commitment, invoked Section 363(m). Id. The district court was
“appalled,” but considered itself bound by Section 363(m) to dismiss the
appeal as statutorily moot. Id. (citing In re Sears Holdings Corp., 616 B.R. 615,
624–25 (S.D.N.Y. 2020) (explaining why the district court found statutory
mootness)). The Second Circuit affirmed, applying its precedent that

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Section 363(m) was jurisdictional and not subject to rules like waiver or
estoppel that might have otherwise barred its belated invocation. Id.
       The Supreme Court granted a writ of certiorari to resolve a split
among the circuit courts on whether Section 363(m) was jurisdictional. Id.
The Court held that the provision fell into the category of nonjurisdictional
rules that are not “impervious to excuses like waiver or forfeiture.” Id. at
297, 304–05. The Supreme Court explained that preconditions to relief and
to suit that are jurisdictional come into existence only when “Congress
‘clearly states’ as much.” Id. at 298 (quoting Boechler, P.C. v. Comm’r, 596
U.S. 199, 203 (2022)). No such clear statement existed regarding Section
363(m). Id. at 304–05. Nonetheless, the Court recognized that compliance
with a precondition may be “important and mandatory,” even when the rule
is not jurisdictional. Id. at 297 (citation omitted).
       We perceive no narrowing of the effect of Section 363(m) other than
to clarify that a party can lose the benefit of its terms. There is no issue here
of waiver or forfeiture.      Thus, compliance with Section 363(m) was
“important and mandatory.”
       It is true that MOAC Mall also discussed mootness outside the context
of statutory or equitable mootness in bankruptcy by citing the standard that a
“case becomes moot only when it is impossible for a court to grant any
effectual relief whatever to the prevailing party.” Id. at 295 (quoting Chafin
v. Chafin, 568 U.S. 165, 172 (2013) (a case involving a convention on
international child abduction)). The Court addressed Article III mootness
because of the purchaser’s separate argument that the transfer of the lease
out of the estate rendered the case moot. Id. at 294–95. The Court did not
resolve that issue because the lower courts had not considered it. Id. at 296.
The Court vacated and remanded where presumably this mootness issue
could be initially considered. Id. at 305.

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       The only mootness issue for us is that which arises under Section
363(m). Nothing in the Supreme Court’s discussion of Chafin affects that.
Indeed, the next sentence in the opinion after saying it would not resolve
issues under Chafin was this: “With respect to the question that we granted
certiorari to consider — whether § 363(m) is a jurisdictional provision — our
answer is no, for the reasons that follow.” Id. at 297. Clearly, the Chafin
discussion was separate from the Section 363(m) analysis.
       Section 363(m) is alive and well and waivable. It was not waived here.
              2.     Did the district court treat Section 363(m) as jurisdictional?
       Our review of the district court’s analysis is that it appropriately
treated Section 363(m) as a nonjurisdictional precondition to relief that
prevented the Sureties from succeeding on appeal. The district court
mentioned “jurisdiction” one time, explaining that it had jurisdiction under
28 U.S.C. § 158(a) to hear an appeal from the bankruptcy court. Instead of
using jurisdictional language while discussing Section 363(m), the district
court stated that the Sureties’ challenges were “statutorily moot” and
“moot under section 363(m).” Further, the fact the district court proceeded
to consider equitable mootness after finding statutory mootness is evidence
that it viewed itself as possessing jurisdiction over the appeal. If a federal
court lacks jurisdiction, “the only function remaining to the court is that of
announcing the fact and dismissing the cause.” Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 94 (1998) (citation omitted). Instead of dismissing
the appeal after considering Section 363(m), the district court then turned to
equitable mootness as an apparent alternative ground.
       We now consider whether the application of Section 363(m) was
otherwise appropriate.

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       b.     Does it matter that the Sureties sought a stay?
       The Sureties emphasize that they sought a stay in the bankruptcy
court. They argue that “because a stay was sought but denied, the absence
of a stay order should not invoke the proscriptions of Section 363(m).” The
relevant question, though, is whether a stay was obtained. In re Manges, 29
F.3d 1034, 1040 (5th Cir. 1994). Focusing on the ruling on the stay motion
properly applies the controlling text. Section 363(m) provides that its
restrictions apply “unless such authorization and such sale or lease were
stayed pending appeal.” 11 U.S.C. § 363(m) (emphasis added). There is no
exception within the text for a party who seeks a stay and fails.
       The Sureties are correct that we have precedent faulting a party for
failing to seek a stay. See, e.g., In re Walker Cnty. Hosp. Corp., 3 F.4th at 234
(stating that “challenges to authorized bankruptcy sales are dismissed when
the party challenging the sale has not sought a stay” (emphasis added)). We
do not read the reverse as true, that seeking a stay is enough to preserve a
challenge.   “This court’s interpretation of § 363(m) — which follows
directly from the text of the statute — is clear: ‘[A] failure to obtain a stay
is fatal to a challenge of a bankruptcy court’s authorization of the sale of
property.’” Id. (first emphasis added, second in original) (quoting In re
Ginther Trusts, 238 F.3d 686, 689 (5th Cir. 2001)).
       The Sureties’ seeking a stay before the bankruptcy court has no
bearing on this appeal given the failure to obtain one.
       c.     Were the challenged provisions “integral to the sale”?
       The Sureties argue that Section 363(m) is inapplicable because the
challenged provisions stripping them of subrogation rights were not integral
to the sale of the Debtors’ assets. We stated already that the failure to obtain
a stay is fatal to the challenge of a bankruptcy sale to a good-faith purchaser

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on appeal. That is certainly the ordinary rule. See, e.g., In re Walker Cnty.
Hosp. Corp., 3 F.4th at 234.
       Consistent with this analysis, one of our precedents held that the
failure to obtain a stay did not moot a case when the bankruptcy court had
reserved for later determination whether the sale would be free and clear of a
creditor’s claims to the property. In re Energytec, 739 F.3d at 217, 220–22. In
that case, a year after the sale occurred, the bankruptcy court concluded that
the sale was free and clear of the creditor’s interests. Id. at 218. On appeal,
this court rejected the applicability of Section 363(m). Id. at 221. Because at
the time the sale occurred the purchaser could not know if the assets would
be free and clear of the claims of others, we reasoned that “‘free and clear’
was not integral to the sale”; the purchaser had agreed to consummate the
sale despite “the risk that [the creditor’s] interests would survive.” Id. at
220–21. We summarized this way: “Requiring a stay before we can review a
[bankruptcy court’s] decision entered a year after a sale that was not
originally free and clear of a particular claim does not follow from the text of
Section 363(m) nor satisfy its purposes.” Id. at 221.
       A more recent precedent supports that Energytec is confined to
situations in which a bankruptcy court specifically reserved an issue for later
determination. See In re Walker Cnty. Hosp. Corp., 3 F.4th at 235 n.5. There,
this court distinguished Energytec because in Walker, “the bankruptcy court
did not reserve any questions for later determination.” Id. Indeed, the
continuing strength of Section 363(m) in the usual sale situation is shown by
the Supreme Court’s recent explanation that the provision “plainly
contemplates that appellate courts might ‘revers[e] or modif[y]’ any covered
authorization,” but that authority is limited because “the reversal or
modification of a covered authorization may not ‘affect the validity of a sale
or lease under such authorization.’” MOAC Mall, 598 U.S. at 299 (quoting
11 U.S.C. § 363(m) (emphasis removed)).

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         The case before us did not have the uncertainty at the time of sale that
existed in Energytec of whether the property would continue to be subject to
creditors’ claims. The bankruptcy court here provided that the sale of these
assets would be free and clear of creditors’ claims, explaining that “the deal
is unlikely to close if we change it, modify our order, and that the cost would
be approximately $350 million to the estate.” This was an explicit finding in
response to the Sureties’ motion for reconsideration or for a stay pending
appeal. This court reviews findings of fact for clear error. In re Walker Cnty.
Hosp. Corp., 3 F.4th at 233–34.
         The Sureties assert that “[t]here is insufficient evidence in the
record” to support the finding that the challenged provisions are integral to
the sale. The bankruptcy court relied on testimony from Michael Dane, who
was the Chief Executive Officer of QuarterNorth Energy LLC, one of the
entities formed to purchase assets from the Debtors. He testified that
purchasing the assets free and clear of the Sureties’ subrogation rights was
vital.
         The Sureties emphasize that Dane never explicitly stated the sale
would not have closed but for the stripping of the Sureties’ rights of
subrogation. Maybe not, but Dane did testify in equivalent terms. He stated
that “purchasing [the] assets free and clear was paramount to [the
purchasers’] consideration of how they would be willing to proceed with
purchasing [the] assets and contributing capital for all purposes of the plan.”
Dane stated that “the concept in general of buying the assets free and clear
of all liens, claims, encumbrances was what was of paramount importance,
including any claims that could come by subrogation.” Further, Dane
testified that extinguishing subrogation rights was part of what purchasing
free and clear meant to the buyers, and that extinguishing those rights was
important to the buyers.

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       The bankruptcy court’s finding that the sale was “unlikely to close”
if the Confirmation Order were altered was plausible in light of the record
read as a whole, and therefore was not clearly erroneous. See In re Ramba,
Inc., 416 F.3d 394, 402 (5th Cir. 2005). The district court, by extension, did
not err in finding that the challenged provisions stripping the Sureties of their
subrogation rights were integral to the sale of the Debtors’ assets, and that
the challenge on appeal was statutorily moot.
       AFFIRMED.

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