AEP Energy Services Gas Holding Company v. Bank of America, NA, No. 08-4196 (2d Cir. 2010)
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08-4196-cv (L); 08-4671-cv (XAP) AEP Energy Services Gas Holding Company v. Bank of America, NA 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2009 4 (Argued: September 29, 2009 Decided: October 29, 2010) 5 Docket Nos. 08-4196-cv (L); 08-4671-cv (XAP)* 6 ------------------------------------- 7 8 AEP ENERGY SERVICES GAS HOLDING COMPANY, HOUSTON PIPE LINE COMPANY LP, HPL RESOURCES COMPANY LP, 9 Plaintiffs-Counter-Defendants-Appellants-Cross-Appellees, 10 - v - 11 12 13 BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT, AS MASTER SWAP COUNTERPARTY, AS SECURED PARTY, AND AS PURCHASER, THE BANK OF NEW YORK, AS TRUSTEE OF THE BAMMEL GAS TRUST, 14 Defendants-Counterclaimants-Appellees-Cross-Appellants. 15 ------------------------------------JACOBS, Chief Judge, SACK and LYNCH, Circuit Judges.** 16 17 18 Before: 19 States District Court for the Southern District of New York 20 (Thomas P. Griesa, Judge) in favor of the defendants. 21 plaintiffs, AEP Energy Services Gas Holding Company, Houston Pipe 22 Line Company, and HPL Resources Company, brought several claims 23 for declaratory and other relief against the defendants, Bank of 24 America, N.A. and the Bank of New York, seeking to establish a Appeal from a summary judgment entered by the United The * 08-4671-cv (XAP) has been withdrawn by stipulation filed January 7, 2009. ** At the time of oral argument, Judge Lynch was a United States District Judge for the Southern District of New York, sitting by designation. He has since joined the Court. 1 right superior to the defendants' to use certain reserves of 2 natural gas and related assets in which Bank of America claimed a 3 vested security interest. 4 conversion, breach of bailment agreement, and replevin, alleging 5 a superior secured interest in the gas, which interest had been 6 infringed when the plaintiffs refused to relinquish possession of 7 the gas upon Bank of America's demand. 8 (Thomas P. Griesa, Judge) granted summary judgment in favor of 9 the defendants on all of the plaintiffs' claims and on Bank of Bank of America counterclaimed for The district court 10 America's conversion-related counterclaims, as to which it 11 awarded damages to Bank of America in excess of $345 million. 12 The district court also denied the plaintiffs' motions to amend 13 the complaint and to defer ruling on the summary judgment 14 motions, which were made during the pendency of summary judgment 15 proceedings. 16 with respect to the plaintiffs' non-declaratory claims. 17 district court's judgment is affirmed in all other respects. The summary judgment for the defendants is vacated The 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Affirmed in part; vacated in part. IRA M. FEINBERG, Hogan & Hartson, LLP (Jenny Rubin Robertson, Toby W. Smith, of counsel; David Dunn, Frank T. Spano, on the briefs) New York, N.Y., for Plaintiffs-Counter-DefendantsAppellants-Cross-Appellees. AARON RUBINSTEIN, Kaye Scholer LLP (Robert Grass, W. Stewart Wallace, Lee M. Cortes, Jr., of counsel; Margot B. Schonholtz, Jeffrey A. Fuisz, on the briefs), New York, N.Y., for 2 1 2 3 4 Defendants-Counterclaimants-AppelleesCross-Appellants. SACK, Circuit Judge: This action stems from a dispute over the rights to 5 natural gas stored in the Bammel Gas Storage Facility, an 6 underground gas reservoir located in Texas. 7 Energy Services Gas Holding Company ("AEP"), Houston Pipe Line 8 Company LP ("HPL"), and HPL Resources Company LP ("HPLR") 9 (hereinafter sometimes collectively the "plaintiffs") entered The plaintiffs, AEP 10 into a complex series of transactions with Enron Corporation or 11 affiliates thereof (hereinafter collectively "Enron"), Bank of 12 America, and the Bank of New York with respect to the right to 13 use certain natural gas and assets contained in the Bammel Gas 14 Storage Facility. 15 the Bammel Gas Trust, a special-purpose entity formed and owned 16 in equal part by Enron and Bank of America, of which the Bank of 17 New York is Trustee. 18 The Bammel Gas Storage Facility is owned by After Enron entered bankruptcy proceedings in the 19 United States Bankruptcy Court for the Southern District of New 20 York in December 2001, Bank of America and the Bank of New York 21 attempted to repossess the gas contained in the Bammel Gas 22 Storage Facility, purportedly pursuant to the terms of the 23 operating agreements among the parties. 24 Instead, they brought suit against the two banks in the United 25 States District Court for the Southern District of Texas (the 26 "Texas District Court") alleging a superior right to continue to 3 The plaintiffs refused. 1 use the gas. Bank of America responded by counterclaiming 2 against the plaintiffs for conversion, breach of bailment 3 agreement, and replevin, asserting a superior secured interest in 4 the gas that had vested upon Enron's bankruptcy. 5 approval by the Bankruptcy Court of a settlement agreement among 6 Enron, Bank of America, and the Bank of New York relating to the 7 Bammel Gas transaction at issue in this appeal, the Texas 8 District Court severed the plaintiffs' declaratory claims from 9 their non-declaratory claims, which were based on tort and Following the 10 contract theories, and transferred the declaratory claims, and 11 Bank of America's related counterclaims, to the United States 12 District Court for the Southern District of New York (the "New 13 York District Court"). 14 plaintiffs' non-declaratory claims and Bank of America's related 15 counterclaims. 16 The Texas District Court retained the Upon this transfer, over the plaintiffs' objections and 17 contrary to the express intention of the Texas District Court, 18 the New York District Court adjudicated the entire controversy, 19 including the non-declaratory claims and counterclaims that had 20 been retained by the Texas District Court. 21 rulings, the New York District Court granted defendant Bank of 22 America's motion for summary judgment as to both the plaintiffs' 23 declaratory claims and non-declaratory claims, and Bank of 24 America's counterclaims, and awarded damages to Bank of America 25 on its counterclaims in the amount of $345,675,000 plus 26 prejudgment interest. Then, in a series of At the same time, the district court 4 1 denied the plaintiffs' motions filed during the pendency of the 2 summary judgment proceedings to amend the complaint and to 3 postpone a decision on the summary judgment motions in order to 4 permit the conduct of further depositions. 5 We agree with the district court with respect to the 6 grant of summary judgment as to the declaratory claims and 7 related counterclaims, which had been properly transferred by the 8 Texas District Court to New York, and as to the denial of the 9 plaintiffs' motions to amend and to allow them to take further 10 depositions. 11 declaratory claims by the New York District Court was an abuse of 12 discretion. 13 first filed -- expressed a clear intention to retain the non- 14 declaratory claims and no special circumstances were present to 15 outweigh the presumption in favor of the first-filed 16 jurisdiction; therefore, the New York District Court should have 17 declined to consider them. 18 summary judgment with respect to the non-declaratory claims, 19 which we conclude should be adjudicated in Texas. 20 21 We conclude, however, that adjudication of the non- The Texas District Court -- in which the claims were Having so determined, we vacate the BACKGROUND The relevant facts are rehearsed in detail in the 22 district court's four lengthy and careful opinions in this case. 23 See AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 2007 24 WL 2428474, 2007 U.S. Dist. LEXIS 63421 (S.D.N.Y. Aug. 28, 2007) 25 ("AEP I"); AEP Energy Servs. Gas Holding Co. v. Bank of Am., 5 1 N.A., 2007 WL 4458117, 2007 U.S. Dist. LEXIS 93022 (S.D.N.Y. Dec. 2 18, 2007) ("AEP II"); AEP Energy Servs. Gas Holding Co. v. Bank 3 of Am., N.A., 2008 WL 925433, 2008 U.S. Dist. LEXIS 30587 4 (S.D.N.Y. Apr. 2, 2008) ("AEP III"); AEP Energy Servs. Gas 5 Holding Co. v. Bank of Am., N.A., 2008 WL 3338203, 2008 U.S. 6 Dist. LEXIS 61264 (S.D.N.Y. Aug. 11, 2008) ("AEP IV"). 7 set forth here only insofar as we think it necessary for an 8 understanding of our resolution of this appeal. 9 evidence in the light most favorable to the plaintiffs, as the 10 non-moving parties, and draw all reasonable inferences in their 11 favor. 12 133, 137 (2d Cir. 2009). They are We construe the See, e.g., SCR Joint Venture L.P. v. Warshawsky, 559 F.3d 13 The 1997 Transaction 14 In November 1997, Enron,1 in an effort to generate off- 15 balance-sheet capital before the end of the year, entered into a 16 series of interrelated agreements (the "Operative Agreements") 17 with Bank of America ("BofA") and the Bank of New York as trustee 18 ("BONY" or the "Trustee"), among other entities, to monetize the 19 natural gas owned by Enron's then-wholly owned subsidiary HPL. 20 At that time, HPL owned and operated an underground natural gas 21 storage reservoir in Harris County, Texas, called the Bammel Gas 22 Storage Facility (the "Storage Facility"). 23 subsidiary, HPLR, owned approximately 80 billion cubic feet 1 HPL and its own Some of the transactions discussed in this opinion were undertaken by affiliates or subsidiaries of Enron Corporation. For ease of reference, we refer throughout to all of these entities collectively as "Enron." 6 1 ("Bcf")2 of natural gas kept in the Storage Facility (the 2 "Storage Gas"). 3 In order to achieve its goal of off-balance-sheet 4 financing, Enron and BofA's predecessor in interest in this 5 transaction, NationsBank, N.A.,3 created the Bammel Gas Trust 6 ("BGT" or the "Trust"), a special-purpose entity that was owned 7 in equal parts by the two entities. 8 as the Trustee of BGT. 9 BONY was designated to act Following the creation of BGT, Enron caused HPL and 10 HPLR to sell the Storage Gas to BGT for a purchase price of $232 11 million. 12 which stated, among other things, that the agreement would "serve 13 as a bill of sale for the Storage Gas without the necessity of 14 having any separate bill of sale or other evidence of the 15 transfer of the Ownership of the Storage Gas" from HPL to BGT, 16 and that BONY, as Trustee of BGT, would be "deemed to have taken 17 delivery of the Storage Gas" as of the date of purchase. 18 Gas Sale Agreement dated December 30, 1997 ("1997 Sale 19 Agreement") §§ 2.03, 2.04, Exh. H to the Declaration of Aaron 20 Rubinstein in Support of Defendants' Motion for Summary Judgment The sale was pursuant to a Storage Gas Sale Agreement, Storage 2 Another measure of natural gas quantity, which is used in the transaction documents and will be referenced in this opinion, is "MMBtus." The technical distinction between these two measures is not relevant to our discussion or resolution of the issues on appeal. Suffice it to say that 80 Bcf of natural gas is approximately equivalent to 80,000,000 MMBtus. 3 Bank of America acquired NationsBank through a merger in 1998. For convenience, all Bank of America affiliates involved in this transaction are hereinafter referred to collectively as "Bank of America" or "BofA." 7 1 ("Rubinstein Decl."), AEP Energy Gas Servs. Holding Co. v. Bank 2 of Am., N.A., No. 05 Civ. 4248 (S.D.N.Y. Aug. 28, 2006). 3 generally Participation Agreement dated December 30, 1997 ("1997 4 Participation Agreement"), Exh. A to Rubinstein Decl. 5 See To fund this purchase, BofA (through its affiliate, 6 Kitty Hawk Funding) loaned BGT approximately $218 million, and 7 BofA and Enron each injected approximately $7 million of equity 8 into BGT, with Enron's equity contribution also financed by 9 BofA.4 As collateral for the loan, BONY, the Trustee of BGT, 10 granted BofA a security interest in all of the assets held in the 11 Trust, including the Storage Gas, pursuant to a Security 12 Agreement. 13 Security Agreement") § 3, Exh. B to Rubinstein Decl. 14 See Security Agreement dated December 30, 1997 ("1997 Concurrently with this transaction, BGT granted HPL and 15 HPLR continued use of the Storage Gas and the Storage Facility 16 under a Pressurization and Storage Gas Borrowing Agreement (the 17 "Pressurization Agreement") in exchange for the payment of 18 "pressurization fees" to BGT, which BGT then used to pay the 19 interest on the BofA loan. 20 HPLR could use the Storage Gas to pressurize the Storage 21 Facility, in order to facilitate the storage and withdrawal of 22 other customers' natural gas; HPL and HPLR could also borrow and 4 Pursuant to this agreement, HPL and BofA later syndicated $229 million of the loan to six other banks. BofA serves as the representative of BONY (the Trustee of BGT) and as the Administrative Agent for the other banks. 8 1 withdraw up to a certain quantity of the Storage Gas for other 2 working uses, subject to replacement. 3 The Pressurization Agreement provided that title to and 4 ownership of the Storage Gas remained with the Trustee until such 5 time as the Storage Gas was either withdrawn and sold by the 6 Trust or borrowed by HPL. 7 provided that beginning in 2004 (when the loan principal was due 8 to be repaid to BofA), HPL was obligated to withdraw the Storage 9 Gas from the facility and make it available to BGT in accordance The Pressurization Agreement also 10 with a "Withdrawal Schedule." 11 that gas pursuant to a Marketing Agreement and to pay to BGT the 12 Houston Ship Channel Index price5 for the gas, irrespective of 13 the price that Enron actually received from the sale. 14 proceeds from this sale were to be applied by BGT to repayment to 15 BofA of the principal of the loan. 16 Enron was then obligated to sell The HPL also had the option under this agreement, instead 17 of withdrawing the Storage Gas to be sold pursuant to the 18 Withdrawal Schedule, to supply Enron with "Exchange Gas" of 19 equivalent quality and value to be sold by Enron pursuant to the 20 Marketing Agreement to fund BGT's repayment of the BofA loan, and 21 thereby to continue to use the Storage Gas in the Storage 22 Facility after the 2004 withdrawal date. 5 The Houston Ship Channel Index lists the price at which natural gas is being sold in the Houston Ship Channel at a particular point in time. It is generally regarded as reflective of the prevailing market price of natural gas. 9 1 In addition, through a Performance Guaranty (the 2 "Guaranty"), Enron guaranteed all the obligations of its 3 subsidiaries, including HPL and HPLR, under the Operative 4 Agreements. 5 "Guaranty Default," the Trustee had the right to immediate 6 possession of the gas. 7 the extent that, inter alia, "[a]ny representation or warranty 8 made by Enron under or in connection with this Guaranty shall 9 prove to have been incorrect in any material respect when made The Guaranty provided that in the event of a A Guaranty Default was deemed to exist to 10 and such materiality is continuing" or "Enron or any of its 11 Principal Subsidiaries shall become the subject of a Bankruptcy 12 Event." 13 Guaranty") §§ 5.01(a), 5.01(c), Exh. E to Rubinstein Decl. 14 Performance Guaranty dated December 30, 1997 ("1997 Although BGT nominally owned the Storage Gas and the 15 Storage Facility following this transaction, HPL and HPLR's right 16 to use the sold assets continued uninterrupted except for (1) the 17 payment from BGT to HPL for the purchase of the Storage Gas and 18 the Storage Facility, (2) fees paid by HPL to BGT for the use of 19 the Storage Gas and the Storage Facility, and (3) the fact that 20 Enron could now book this as a "sale" for year-end-revenue 21 accounting purposes. 22 similarly to a sale and leaseback of the gas. In effect, the transaction functioned 10 1 The 2001 Transaction 2 In 2000, Enron decided to sell HPL.6 However, for its 3 own accounting advantage, it wanted to keep the existing off- 4 balance-sheet structure in place. 5 purchasing HPL outright, but Enron was unwilling to unwind the 6 1997 transaction structure in order to make the sale of HPL to 7 AEP. 8 9 AEP expressed interest in In May 2001, Enron and AEP settled on the following transaction structure: Enron created a new subsidiary, BAM 10 LeaseCo ("LeaseCo"), which assumed all of the rights and 11 obligations of HPL under the Operative Agreements, as well as 12 specified assets of HPL, pursuant to an Assignment and Assumption 13 Agreement. 14 HPL with respect to its transaction with BGT, freeing HPL of 15 these rights and obligations. 16 HPL bought approximately 25 Bcf of gas back from BGT for $94 17 million. 18 in this gas. 19 Gas, and BofA with this same amount of Storage Gas as secured 6 Thus LeaseCo effectively stepped into the shoes of AEP then bought HPL. Soon after, BofA thereafter agreed to release its security interest That left BGT with title to only 55 Bcf of Storage Prior to this, in November 1999, there was another transaction in which HPL entered into a second sale leaseback arrangement with another Enron-formed special purpose entity named Asset Holdings, L.P. ("Holdings"), in which HPL effectively sold its interest in the Storage Facility and other equipment and assigned its obligations under the Pressurization Agreement to Holdings, and Holdings then leased these assets back to HPL. Holdings was thus among the interested parties in the 2001 restructuring, along with HPL. Because the transaction between Holdings and HPL does not materially affect the issues on appeal, however, for purposes of our description of the 2001 Transaction it will be largely ignored. 11 1 collateral for the loan. 2 Facility and associated pipelines and equipment back to HPL for a 3 term of thirty years (with a further twenty-year option), for 4 which AEP prepaid the rent of $274 million to LeaseCo. 5 LeaseCo then subleased the Storage Additionally, under a "Right To Use Agreement," LeaseCo 6 granted HPL "quiet enjoyment" of the Storage Gas for the entire 7 term of the sublease. 8 To Use Agreement provides, in relevant part, that: 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Specifically, section 2.01(b) of the Right LeaseCo covenants and agrees that, so long as no HPL Default has occurred and is continuing, and notwithstanding the terms, provisions and restrictions in any Counterparty Agreement, LeaseCo will have sufficient rights in and to the [Storage Gas] to enable it to make, and that it will cause and allow, such [Storage Gas] to be available to HPL at the Storage Facility for HPL's right to Quiet Enjoyment at all times during the Term[ of the sublease]. . . . The existence of a Permitted Lien shall not be a breach by LeaseCo of this Section 2.01(b); provided, however, that LeaseCo covenants and agrees with HPL that LeaseCo shall timely perform and comply with those of its obligations under the Counterparty Agreements to which LeaseCo is a party applicable to the [Storage Gas], and shall timely perform and comply with its obligations hereunder with respect to amounts secured by Permitted Liens, to ensure that HPL has the Quiet Enjoyment of the [Storage Gas] throughout the Term. 33 Right To Use Agreement dated May 31, 2001 ("Right To Use 34 Agreement") § 2.01(b), Exh. W to Rubinstein Decl. 35 enjoyment is defined in the Right To Use Agreement as "the 36 Enjoyment of the [Storage] Gas free of adverse claims of Third 37 Parties, of any kind or nature, in, to or with respect to the 12 Quiet 1 [Storage] Gas, or any part thereof, that interfere with, restrict 2 or impede the Enjoyment of the [Storage] Gas." 3 (definition of "Quiet Enjoyment"). 4 among the "Permitted Liens" that are contemplated by this 5 provision, id. (definition of "Permitted Liens"), whose existence 6 does not infringe on the right to quiet enjoyment under the 7 agreement. 8 Id. § 1.01 The BofA secured loan is The Right To Use Agreement further provides that 9 "LeaseCo shall use only Exchange Gas to satisfy its obligations 10 under Article III of the Pressurization Agreement [setting forth 11 the requirement to withdraw the gas in 2004 pursuant to the 12 Withdrawal Schedule to be sold by Enron in repayment of the loan] 13 to make withdrawals of Natural Gas from the Storage Facility." 14 Id. § 8.01. 15 which LeaseCo and Enron would repay the principal on the BofA 16 loan when it came due in 2004 without interrupting HPL's right 17 under the restructured agreements to quiet enjoyment and 18 continued use of the Storage Gas for the thirty-year term of the 19 sublease. 20 This clause effectively provided the mechanism by As part of the 2001 Transaction, each of the Operative 21 Agreements executed in 1997 -- including the Participation 22 Agreement, Pressurization Agreement, Security Agreement, and 23 Guaranty -- was amended and restated to replace HPL and HPLR with 24 LeaseCo. 25 May 31, 2001 ("2001 Participation Agreement"), Exh. L to 26 Rubinstein Decl.; Amended and Restated Pressurization and Storage See Amended and Restated Participation Agreement dated 13 1 Gas Borrowing Agreement dated May 31, 2001 ("2001 Pressurization 2 Agreement"), Exh. N to Rubinstein Decl.; Amended and Restated 3 Security Agreement dated May 31, 2001 ("2001 Security 4 Agreement"), Exh. M to Rubinstein Decl.; Amended and Restated 5 Performance Guaranty dated May 31, 2001 ("2001 Guaranty"), Exh. O 6 to Rubinstein Decl. 7 HPL (and thereby AEP, which was purchasing HPL) all of the rights 8 that HPL had had under the 1997 Transaction, while Enron 9 continued to retain all of the obligations of HPL under that LeaseCo was used as a vehicle for granting 10 transaction (via LeaseCo), such that HPL could continue to use 11 and operate the Storage Facility and the Storage Gas, but LeaseCo 12 was now responsible for the payments of fees and other 13 obligations to BGT. 14 15 All told, AEP paid more than $741 million for HPL and for the right to use the Storage Gas and Storage Facility. 16 As a condition precedent to the 2001 Transaction, BofA 17 signed a Consent and Acknowledgment ("Consent"), consenting to 18 the assignment of HPL's rights and obligations under the 19 Operative Agreements to LeaseCo, and to HPL's use of the Storage 20 Gas and Storage Facility as provided in the sublease and the 21 Right To Use Agreement. 22 entering into these transactions "in reliance upon" the execution 23 of this Consent and that "but for" this Consent, AEP would not 24 purchase HPL and HPL would not enter into the agreements with 25 LeaseCo. 26 ("Consent") § 2(a)(ii), Exh. X to Rubinstein Decl. The Consent acknowledges that HPL was Consent and Acknowledgment dated May 30, 2001 14 1 The Consent contains several provisions of particular 2 relevance to the plaintiffs' claims. Section 2(e) of the 3 Consent, which provides the basis for AEP's non-declaratory tort 4 and contract claims, reads: Estoppel and Release. Each of BofA and the Trustee hereby agrees and acknowledges that each Operative Agreement is in full force and effect and that, to its actual knowledge, no defaults by LeaseCo, Holdings, [Enron], [Enron North America] or [HPL] exist and no events or conditions exist which after the passage of time or the giving of notice or both would constitute a default or Event of Default by LeaseCo, Holdings, [Enron] or [Enron North America] or [HPL] thereunder. 5 6 7 8 9 10 11 12 13 14 15 16 Id. § 2(e). 17 Operative Agreements, any materially incorrect representation 18 made by Enron under the Guaranty constitutes a default. 19 among the representations made by Enron under the Guaranty is 20 that: 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Under section 5.01 of the Guaranty, one of the The audited consolidated balance sheet of Enron and its Subsidiaries as of December 31, 2000, and the related audited consolidated statements of income, cash flows, and changes in stockholders' equity accounts for the fiscal year then ended and the unaudited consolidated balance sheet of Enron and its Subsidiaries as of March 31, 2001, and the related unaudited consolidated statements of income, cash flows, and changes in stockholders' equity accounts for the fiscal quarter then ended, . . . fairly present, in conformity with GAAP, . . . the consolidated financial position of Enron and its Subsidiaries. . . . 36 2001 Guaranty § 3.01(d)(i). This representation, as it 37 subsequently would be learned, was dramatically false. 15 Included 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 As related to the plaintiffs' declaratory claims, section 2(g) of the Consent provides that: In connection with the assignments referred to in clause (a)(i) of this Section 2 [providing for the assignment by HPL and HPLR of all rights and obligations under the Operative Agreements to LeaseCo (hereinafter the "Assigned Obligations")], each of BofA and the Trustee has agreed, and hereby agrees, to enforce payment and performance of the Assigned Obligations solely against LeaseCo and Holdings and has agreed to release, and hereby releases, each of [HPL] and HPLR from all liabilities and obligations under the Operative Agreements. . . . 16 Consent § 2(g). Section 11 further provides, "For avoidance of 17 doubt, nothing herein shall impair the lien and security interest 18 of BofA under the Security Agreement or, except as expressly set 19 forth in Section 2 hereof, reduce the rights and remedies of BofA 20 under the Security Agreement." 21 Consent gives HPL, among other things, the right (but not the 22 obligation) to cure any defaults that may arise that affect HPL's 23 right to use the gas, and precludes the Trustee and BofA from 24 exercising any of their rights and remedies granted by the 25 Operative Agreements upon a default absent notice to and failure 26 to cure by HPL. 27 opportunity to cure a default, under a Purchase Option Agreement 28 (another of the Operative Agreements), HPL received from LeaseCo 29 the right to purchase the Storage Gas outright if certain events 30 of default occurred, including but not limited to Enron's entry 31 into bankruptcy proceedings. Id. § 11. Section 2 of the In addition to HPL's right to notice of and the 16 1 As relevant to this dispute, the rights and remedies of 2 BofA under the Security Agreement include, in the event of a 3 Guaranty Default, the right to obtain the remedies set forth in 4 section 5.02 of the Guaranty. 5 upon a Guaranty Default, to issue a Settlement Notice to Enron 6 for the payment and settlement of all outstanding fees by a fixed 7 date. 8 to deliver, Exchange Gas in lieu of the Storage Gas by that date, 9 the Trustee may then, at BofA's direction and provided that This section permits the Trustee, If Enron fails thereafter to deliver, or to cause LeaseCo 10 neither Enron nor the plaintiffs have since cured the default, 11 take possession of and withdraw the Storage Gas. 12 13 These restructured transactions all closed concurrently on May 31, 2001. 14 In December 2001, Enron petitioned for bankruptcy under 15 Chapter 11 of the United States Bankruptcy Code in the United 16 States Bankruptcy Court for the Southern District of New York. 17 Enron's petition for bankruptcy constituted a Guaranty Default 18 under the Operative Agreements. 19 'Guaranty Default' shall exist if . . . Enron or any of its 20 Principal Subsidiaries shall become the subject of a Bankruptcy 21 Event."). See 2001 Guaranty § 5.01(c) ("A 22 Texas State Court Proceedings 23 In May 2002, following Enron's filing of its bankruptcy 24 petition, BofA demanded access to the Storage Facility to enforce 25 its security interest under the Operative Agreements by taking 26 possession of the Storage Gas. When the plaintiffs -- AEP, HPL, 17 1 and HPLR -- refused, BofA filed an action against HPL in Texas 2 state court seeking declarations that BofA held a valid and 3 enforceable security interest in the Storage Gas, that it was 4 entitled to pursue contractual remedies against HPL to foreclose 5 on this interest and take possession of the gas, and that HPL's 6 rights to use the Storage Gas were subordinate to BGT's ownership 7 rights and BofA's security interest. 8 contract counterclaim against BofA, asserting that by bringing 9 this lawsuit against HPL, BofA breached its representation that HPL then filed a breach of 10 it would not interfere with HPL's rights to exclusive use and 11 quiet enjoyment of the gas, and sought to enjoin BofA's 12 interference with HPL's continued use of the gas. 13 In December 2003, the Texas state court granted summary 14 judgment in defendant BofA's favor on both its declaratory claims 15 and HPL's counterclaims, concluding that BofA had a valid 16 security interest in the gas that was superior to any rights of 17 HPL to use the gas, and that HPL was "estopped to deny" that BGT 18 was the owner of the gas. 19 Line Co., No. 2002-36488, slip op. at 2 (Tex. Dist. Ct. Dec. 9, 20 2003). 21 of Appeals vacated the judgment and ordered BofA's claims 22 dismissed. 23 violated the automatic stay implemented upon Enron's bankruptcy. 24 Houston Pipeline Co. v. Bank of Am., N.A., 213 S.W.3d 418, 428-31 25 (Tex. App. 2006). HPL appealed. See Bank of Am., N.A. v. Houston Pipe On August 24, 2006, the Texas State Court It concluded that the judgment was void because it 18 1 The Federal Proceedings 2 Meanwhile, in October 2003, AEP filed a complaint in 3 the Texas District Court asserting claims for fraud, breach of 4 contract, and negligent misrepresentation against BofA 5 (collectively, the "Tort and Contract Claims") based on the 6 allegedly false representation contained in section 2(e) of the 7 Consent that BofA had no knowledge of any Enron default existing 8 at the time of the execution of the agreement. 9 2004, AEP filed an amended complaint adding five claims for On January 8, 10 declaratory relief seeking to confirm HPL's superior right to use 11 the gas (the "Declaratory Claims"), and adding HPL and HPLR as 12 plaintiffs and BONY as a second defendant. 13 Meanwhile, over AEP's objections, on January 15, 2004, 14 the Enron bankruptcy court in New York issued an order approving 15 a Settlement Agreement among Enron, BofA, and BONY (the "Enron 16 Settlement Agreement"). 17 the Bammel Gas transaction filed by BofA and BONY as creditors in 18 the bankruptcy proceeding, provided that BofA and BONY would 19 "look solely to the proceeds, if any, from any Sale [of the 20 Storage Gas], as paid to [BofA and BONY] pursuant to Section 8.5 21 of the Settlement Agreement, for recovery on any allowed BGT 22 Claim. . . . " 23 Enron Corp., No. 01-16034 (AJG) (Bankr. S.D.N.Y. Jan. 15, 2004). 24 The order also permitted the automatic bankruptcy stay to be 25 "lifted for the sole purpose of allowing the Secured Party [BofA] 26 and the Trustee [BONY] to attempt to realize upon the value of The order allowed the claims relating to Order Approving Settlement Agreement at 9, In re 19 1 the [Storage] Gas, including allowing the Secured Party and/or 2 the Trustee to cause the issuance of a Settlement Notice and a 3 written notice of an Event of Default (as each such term is 4 defined in the Operative [Agreements])." 5 Id. Pursuant to this order, BofA sent Notices of Default 6 and Settlement Notices, in accordance with the terms of the 7 Guaranty, to Enron and LeaseCo, with copies to AEP and HPL. 8 Enron did not perform its purported obligations under the 9 Guaranty in response to these letters. Nor did AEP exercise its 10 options under the Operative Agreements to cure the default or to 11 purchase the gas. 12 that AEP withdraw and transfer custody of 55 Bcf of natural gas 13 in the Storage Facility to BofA. 14 As a result, on May 14, 2004, BofA demanded AEP refused. Back in Texas, on April 6, 2005, the Texas District 15 Court, adopting a September 14, 2004 memorandum and 16 recommendation of a magistrate judge, severed the plaintiffs' 17 Declaratory Claims from their Tort and Contract Claims and 18 transferred the Declaratory Claims only to the New York District 19 Court pursuant to 28 U.S.C. § 1404(a). 20 concluded that transfer was proper because the resolution of the 21 Declaratory Claims, insofar as they sought a declaration of the 22 rights and obligations under the Operative Agreements to which 23 Enron was a party, and to the extent that they implicated the 24 terms of the Enron Settlement Agreement, could affect legal 25 interests at issue in the Enron bankruptcy proceeding then 26 pending in the Southern District of New York. 20 The Texas District Court The Texas District 1 Court retained AEP's Tort and Contract Claims, however, which 2 claims did not implicate the terms of any agreements at issue in 3 the bankruptcy proceedings. 4 That month, BofA filed an answer in the Texas District 5 Court action. It also asserted counterclaims, in its capacity as 6 BONY's representative, against HPL for breach of contract, breach 7 of bailment agreement, conversion/trover, and detinue/replevin 8 (the "Declaratory Counterclaims") and, in its own capacity, 9 against AEP and HPL for fraud and fraudulent inducement (the 10 "Tort Counterclaims") based on those parties' purported 11 misrepresentations that induced BofA to execute the Consent. 12 Shortly thereafter, BofA moved in the Texas District 13 Court to transfer the entire action to the New York District 14 Court. 15 District Court recommended that this motion be granted in part 16 and denied in part. 17 AEP's Tort and Contract Claims to New York, the magistrate judge 18 explained that "the court's decision [in its previous order] to 19 transfer the declaratory claims and retain all other claims was 20 deliberate" and that "[t]he [declaratory] claims that were 21 transferred are clearly distinct in nature from the [tort and 22 contract] claims retained in this suit." 23 Recommendation and Order at 2, AEP Energy Servs. Gas Holding Co. 24 v. Bank of Am., N.A., Civil No. H-03-4973 (S.D. Tex. June 29, 25 2005). 26 "reiteration of this transfer argument is improper," noting that On June 29, 2005, a magistrate judge in the Texas In recommending against the transfer of Memorandum, The magistrate judge further concluded that BofA's 21 1 BofA had made the same argument to the Texas District Court in 2 objecting to the September 14, 2004 recommendation to transfer 3 only the declaratory claims, which argument the district court 4 had "necessarily rejected [at that time] . . . by adopting" the 5 magistrate judge's recommendation to transfer those claims alone. 6 Id. at 3. 7 The magistrate judge recommended, however, that the 8 Declaratory Counterclaims filed by BofA, which paralleled the 9 Declaratory Claims filed by the plaintiffs, be severed from the 10 Tort Counterclaims and transferred to the New York District 11 Court, and that AEP's motion pending in the Texas District Court 12 to amend the complaint to eliminate the Declaratory Claims in 13 conformance with the previous transfer order be granted. 14 August 31, 2005, the Texas District Court adopted this 15 recommendation in full and ordered the Declaratory Counterclaims 16 severed and transferred to New York. 17 On Pursuant to the Texas District Court's initial transfer 18 order, the record in this action, including the original 19 complaint, was administratively transferred from the Texas 20 District Court to the New York District Court to initiate 21 proceedings here. 22 District Court, as they had in the Texas District Court, to amend 23 the complaint in order to conform the pleadings to the transfer 24 order. 25 restate the Declaratory Claims that had been transferred to New The plaintiffs then moved in the New York Specifically, the plaintiffs moved, inter alia, to 22 1 York, to eliminate the Tort and Contract Claims that remained in 2 Texas, and to eliminate AEP as a plaintiff. 3 The New York District Court held two status conferences 4 with the parties to address this issue, during which the court 5 informed the parties that "for reasons of judicial economy, the 6 entire case should be tried in one place." 7 2428474, at *6, 2007 U.S. Dist. LEXIS 63421, at *19. 8 end, the court suggested that if it were to grant the plaintiffs' 9 motion to amend the complaint to eliminate the Tort and Contract AEP I, 2007 WL To this 10 Claims, BofA could simply file a mirror-image third-party 11 complaint on these same issues against AEP in New York in order 12 "to effectively bring those claims before this court." 13 November 30, 2005, the New York District Court issued a 14 memorandum to the parties inviting defendant BofA to "file a 15 third-party complaint against AEP" in order "to bring all the 16 issues before the court in the New York case," and stating that 17 it deemed AEP "subject to the jurisdiction of the court by virtue 18 of having appeared here as a plaintiff, even though it now seeks 19 to withdraw as such." 20 Servs. Gas Holding Co. v. Bank of Am., N.A., No. 05 Civ. 4248 21 (S.D.N.Y. Nov. 30, 2005). 22 court suggested. 23 Id. On Memorandum to Counsel at 2, AEP Energy BofA then filed that complaint as the In light of these developments, as the New York 24 District Court later explained: "Recognizing that it could not 25 avoid litigating the claims in this court, AEP consented to the 26 denial of the part of its May 13 motion [to amend the complaint] 23 1 that related to the elimination of AEP[ as a plaintiff] and the 2 [tort and contract] claims, thereby agreeing to have them remain 3 in the complaint." 4 Dist. LEXIS 63421, at *19. 5 New York District Court denied AEP's motion to amend the 6 complaint in these respects, stating only that it had 7 "essentially been agreed" that these motions would be denied. 8 AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., No. 05 9 Civ. 4248, slip op. at 2 (S.D.N.Y. Jan. 5, 2006). AEP I, 2007 WL 2428474, at *6, 2007 U.S. Accordingly, on January 5, 2006, the The court did 10 grant plaintiff AEP's motion to amend the complaint in other 11 respects, however, including a restatement of the Declaratory 12 Claims that were properly before the New York District Court. 13 also dismissed defendant BofA's third-party complaint as moot. 14 Consistent with this order, on January 6, 2006, the plaintiffs 15 filed a second amended complaint in the New York District Court 16 that included the Tort and Contract Claims. 17 It Based on what had transpired in New York, and in light 18 of the New York District Court's expressed intention to 19 adjudicate the entire dispute, defendant BofA filed a renewed 20 motion in the Texas District Court to transfer venue of the Tort 21 and Contract Claims and the related Tort Counterclaims to New 22 York. 23 denied the motion. 24 purported "new" grounds for transfer: 25 26 27 In a September 22, 2006 order, the Texas magistrate judge She emphatically rejected the validity of any The "recent development" from which all of [BofA]'s arguments flow is the sua sponte decision of the New York court to exercise 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 jurisdiction over the contract and tort claims and counterclaims. However, as far as this court is concerned, this court has retained jurisdiction over those claims. This court severed the declaratory actions from the contract and tort claims and counterclaims and transferred only the former [to New York]. . . . BofA makes no attempt to explain how the United States District Court for the Southern District of New York can assert jurisdiction over claims presently before this court. . . . Absent some legal explanation of that court's jurisdiction over the contract and tort claims and counterclaims, this court finds no reason to revisit the transfer issue. In fact, the parties should be concerned whether those claims are properly before the New York court and whether a judgment issued by the United States District Court for the Southern District of New York on the contract and tort claims and counterclaims would be a nullity. 26 Order at 4-5, AEP Energy Servs. Gas Holding Co. v. Bank of Am., 27 N.A., Civil No. H-03-4973 (S.D. Tex. Sept. 22, 2006). 28 27, 2006, the Texas District Court adopted this order and denied 29 the motion for transfer. 30 On October BofA then filed a petition for a writ of mandamus to 31 the Fifth Circuit, seeking to vacate the Texas District Court's 32 order denying the motion to transfer and to compel the Texas 33 District Court "to transfer the remaining claims to the New York 34 Court." 35 N.A., No. 06-20875 (5th Cir. Nov. 13, 2006). 36 2006, the Fifth Circuit denied this petition. 37 38 Petition for Writ of Mandamus at 2, In re Bank of Am., On December 5, Back in the Texas District Court after the Fifth Circuit's denial of mandamus, and following three essentially 25 1 failed motions by BofA for a continuance and to stay the trial, 2 the Tort and Contract Claims and related Tort Counterclaims were 3 assigned to District Judge Hittner for trial beginning in April 4 2007. 5 Claims along with the Declaratory Claims and Counterclaims 6 proceeded toward summary judgment. 7 At the same time, in New York, the Tort and Contract On June 16, 2006, the plaintiffs -- AEP, HPL, and HPLR 8 -- moved in the New York District Court for partial summary 9 judgment as to two of the Declaratory Claims and as to the 10 Declaratory Counterclaims. 11 separately moved for summary judgment on all of the claims and 12 counterclaims asserted by the parties. 13 BofA opposed this motion, and also On October 25, 2006 -- shortly after the Texas State 14 Court of Appeals vacated the Texas state trial court's 2003 15 judgment in favor of BofA on the grounds that it violated the 16 automatic bankruptcy stay -- the plaintiffs moved in the New York 17 District Court to file a third amended complaint to add a 18 declaratory claim that the Bammel Gas transaction was not a "true 19 sale" of the gas. 20 pleading the claim because the Texas state court judgment then in 21 effect had "estopped" them from denying that BGT was the true 22 owner of the gas. 23 in the New York District Court to strike the Tort and Contract 24 Claims from the complaint. 25 26 They had theretofore been precluded from At the same time, the plaintiffs again moved On January 31 and February 1, 2007, the New York District Court held oral argument on the parties' summary 26 1 judgment motions. 2 findings on the record regarding the Declaratory Claims and 3 Counterclaims, but reserved judgment as to the Tort and Contract 4 Claims. 5 Court's resolution of the Tort and Contract Claims, AEP moved in 6 the Texas District Court to enjoin BofA from seeking rulings on 7 these claims in New York, which motion was denied. 8 9 At its conclusion, the court announced various On February 20, 2007, prior to the New York District On March 12, 2007, the New York District Court held a hearing on the subject of the Tort and Contract Claims. After 10 indicating that it would require significant additional time to 11 resolve these issues, and in response to the parties' inquiry as 12 to how to handle the upcoming Texas trial on these issues 13 scheduled for less than a month later, the New York District 14 Court stated that it would "suggest to [Judge Hittner in Texas] 15 that any [such] trial should be put off" pending resolution of 16 the summary judgment motions in New York. 17 at 142, AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 18 No. 05 Civ. 4248 (S.D.N.Y. Mar. 12, 2007). 19 Transcript of Record The following day, in apparent response to the New York 20 District Court's statement, defendant BofA filed a third motion 21 for continuance in the Texas District Court seeking to postpone 22 the scheduled trial to allow the New York District Court to 23 resolve the pending summary judgment motions. 24 attached and quoted from the relevant portions of the hearing 25 transcript in which Judge Griesa indicated that he would 26 communicate to Judge Hittner "[his] belie[f that] the trial date 27 In support, BofA 1 should be continued to allow him to complete his work on the 2 summary judgment motion." 3 Continuance at 2, AEP Energy Servs. Gas Holding Co. v. Bank of 4 Am., N.A., Civil No. H-03-4973 (S.D. Tex. Mar. 13, 2007). 5 March 14, notwithstanding several prior refusals to continue or 6 stay the trial, Judge Hittner granted BofA's third motion for a 7 continuance "pending the issuance of a summary judgment order" by 8 the New York District Court. 9 Holding Co. v. Bank of Am., N.A., Civil No. H-03-4973 (S.D. Tex. 10 11 Bank of America's Third Motion for On Order at 1, AEP Energy Servs. Gas Mar. 14, 2007). Finally, on March 26, 2007, the plaintiffs filed 12 another motion in the New York action under Federal Rule of Civil 13 Procedure 56(f), seeking to continue the summary judgment motions 14 and to reopen discovery in order to permit the plaintiffs to 15 depose two additional witnesses: former Enron CFO Andrew Fastow 16 and former Arthur Andersen auditor Mary Cilia. 17 The New York District Court's Decisions 18 In a February 22, 2007 memorandum and an August 28, 19 2007 opinion, the New York District Court granted summary 20 judgment in BofA's favor, dismissing all of the plaintiffs' 21 Declaratory Claims and Tort and Contract Claims, and granting 22 BofA relief on its counterclaims for conversion, breach of 23 bailment agreement, and replevin. 24 were contingent on AEP prevailing on its tort claims and were 25 therefore rendered moot by this judgment. 26 2428474, at *1-2, *17, 2007 U.S. Dist. LEXIS 63421 at *3 *7, 28 The remaining counterclaims See AEP I, 2007 WL 1 *47 *48; see also Memorandum to Counsel ("Memorandum Op."), AEP 2 Energy Servs. Gas Holding Co. v. Bank of Am., N.A., No. 05 Civ. 3 4248 (S.D.N.Y. Feb. 22, 2007). 4 The district court first rejected the plaintiffs' 5 contention that it lacked jurisdiction to resolve the Tort and 6 Contract Claims, reasoning that "since AEP consented to the 7 arrangement whereby the [tort and contract] claims remained in 8 this court, . . . AEP waived its objection to this court's 9 jurisdiction." AEP I, 2007 WL 2428474, at *8, 2007 U.S. Dist. 10 LEXIS 63421, at *24. 11 renewed motion to amend the complaint to eliminate these claims, 12 reiterating its view that "it is most efficient to have this case 13 tried in one forum." 14 WL 2428474, at *8, 2007 U.S. Dist. LEXIS 63421, at *24. 15 denied the plaintiffs' motion to amend the complaint to add a new 16 declaratory claim based on the assertion that there had been no 17 "true sale" of the gas, concluding that such an amendment would 18 be "futile" because the 1997 Transaction "was not a sham" as the 19 plaintiffs had alleged. 20 2007 WL 2428474, at *8, 2007 U.S. Dist. LEXIS 63421, at *24. 21 The court therefore denied the plaintiffs' Memorandum Op. at 7-8; see also AEP I, 2007 It also Memorandum Op. at 7; see also AEP I, The court then turned to the parties' summary judgment 22 motions. With respect to the Declaratory Claims and 23 Counterclaims, the court determined that defendant BofA had a 24 valid, presently enforceable security interest in the Storage Gas 25 that was not subordinated in the 2001 Transaction and that was 26 superior to the plaintiffs' right to use the gas. 29 AEP I, 2007 WL 1 2428474, at *1, 2007 U.S. Dist. LEXIS 63421, at *5; see also 2 Transcript of Record at 150, AEP Energy Servs. Gas Holding Co. v. 3 Bank of Am., N.A., No. 05 Civ. 4248 (S.D.N.Y. Feb. 1, 2007). 4 also concluded that the Enron bankruptcy constituted an event of 5 default under the relevant agreements, and that BofA's right to 6 enforce its security interest upon an event of default was not 7 affected by the Enron Settlement Agreement. 8 2428474, at *1, 2007 U.S. Dist. LEXIS 63421, at *5; see also 9 Transcript of Record at 155, AEP Energy Servs. Gas Holding Co. v. It AEP I, 2007 WL 10 Bank of Am., N.A., No. 05 Civ. 4248 (S.D.N.Y. Feb. 1, 2007). 11 light of these findings, the court concluded that HPL's refusal 12 to relinquish the gas upon BofA's demand constituted conversion, 13 breach of bailment, and replevin, and granted summary judgment to 14 BofA on these claims. 15 In See Memorandum Op. at 5. Turning to the Tort and Contract Claims, the court 16 concluded that section 2(e) of the Consent, on which these claims 17 were based, "was an estoppel provision and not a representation" 18 and therefore could not constitute the basis for any 19 misrepresentation-based claims as a matter of law. 20 WL 2428474, at *9, 2007 U.S. Dist. LEXIS 63421, at *27. 21 arguendo that section 2(e) was a representation, however, the 22 court nonetheless rejected these claims on the merits based on a 23 lack of evidence that plaintiff AEP had relied on BofA for such 30 AEP I, 2007 Assuming 1 accounting judgments related to Enron's financials.7 2 WL 2428474, at *14, 2007 U.S. Dist. LEXIS 63421, at *39-*40. 3 The district court summed up its views as follows: 4 5 6 7 8 9 10 11 12 13 14 15 16 Id., 2007 When all the complexities of these transactions are sorted out in light of the various detailed arguments of the parties, two basic conclusions emerge. BofA dealt with Enron and its related entities on a secured basis. AEP dealt with Enron and its related entities on a non-secured basis and thus took the risks that were unfortunately involved with that dealing. This litigation has been concerned with the effort of AEP to remove BofA from its secured position. However, BofA has done nothing, by contract or otherwise, to relinquish that position. 17 Id., 2007 WL 2428474, at *17, 2007 U.S. Dist. LEXIS 63421, at 18 *48-*49. 19 Finally, in light of its finding that the plaintiffs 20 could not prove reliance with respect to the Tort and Contract 21 Claims, the court denied the plaintiffs' request to continue 22 summary judgment proceedings in order to take two additional 23 depositions to determine the status of defendant BofA's 24 knowledge. 25 LEXIS 63421, at *43. 26 27 See id., 2007 WL 2428474, at *15, 2007 U.S. Dist. On December 18, 2007, the New York District Court issued a second opinion as to the form and amount of judgment due 7 Because we do not reach the merits of this portion of the district court's decision in resolving this appeal, we do not address the district court's conclusion that, in the context of this case, AEP's breach of contract claim (Count VII) would require proof of reliance in the same manner in which fraud and misrepresentation claims normally require this element to be met. AEP I, 2007 WL 2428474, at *14, 2007 U.S. Dist. LEXIS 63421, at *39-*40. 31 1 defendant BofA on its conversion counterclaim. See AEP II, 2007 2 WL 4458117, 2007 U.S. Dist. LEXIS 93022. 3 that because "AEP converted the gas by refusing to turn it over 4 to BofA when BofA requested it," BofA was entitled either to 5 money damages or to the return of the gas under Texas law. 6 2007 WL 4458117, at *1, 2007 U.S. Dist. LEXIS 93022, at *2-*3. 7 BofA elected money damages for the value of the gas, which the 8 court determined to be $347,325,000. 9 *1, *4, 2007 U.S. Dist. LEXIS 93022, at *3, *12. The court concluded Id., Id., 2007 WL 4458117, at This figure 10 represented the Houston Ship Channel market value of the gas on 11 the date of conversion, which the court fixed at May 14, 2004. 12 Id., 2007 WL 4458117, at *1, *4, 2007 U.S. Dist. LEXIS 93022, at 13 *3, *12. 14 required to be reduced by the cost to BofA of removing the 15 natural gas from the Storage Facility had it elected to take 16 possession rather than money damages. 17 *5, 2007 U.S. Dist. LEXIS 93022, at *13-*14. 18 be determined at a later date. 19 U.S. Dist. LEXIS 93022, at *14. 20 The court concluded, however, that this amount was Id., 2007 WL 4458117, at Those costs were to Id., 2007 WL 4458117, at *5, 2007 The plaintiffs -- AEP, HPL, and HPLR -- moved for 21 reconsideration of the court's finding that conversion occurred 22 on May 14, 2004, contending that instead the correct date of 23 conversion was July 22, 2002, when the gas's market price was 24 lower. 25 untimely because, it found, the plaintiffs had failed to raise 26 this argument prior to the court's December 18 decision. On April 2, 2008, the court denied that motion as 32 AEP 1 III, 2008 WL 925433, at *1-*2, 2008 U.S. Dist. LEXIS 30587, at 2 *3-*5. 3 question on the merits, confirming its view that May 14, 2004, 4 was the correct date of conversion because "BofA had no legal 5 right to demand or obtain custody of the gas until after the 6 automatic stay in the Enron bankruptcy was lifted in 2004." 7 2008 WL 925433, at *2, 2008 U.S. Dist. LEXIS 30587, at *6. The court nonetheless then proceeded to address this Id., 8 In a fourth opinion, on August 11, 2008, the district 9 court calculated the withdrawal cost of the gas, at three cents 10 per MMBtu, as $1.65 million and set BofA's total damages at 11 $345,675,000 plus prejudgment interest. 12 at *1-*2, 2008 U.S. Dist. LEXIS 61264, at *4-*6. AEP IV, 2008 WL 3338203, 13 The Instant Appeal 14 The plaintiffs -- AEP, HPL, and HPLR -- appeal from 15 these judgments on several grounds. As an initial matter, they 16 contend that the New York District Court lacked jurisdiction over 17 the Tort and Contract Claims in light of the Texas District 18 Court's unambiguously limited transfer orders and therefore erred 19 in adjudicating these claims. 20 the grant of summary judgment as to these claims on this ground. 21 In the alternative, the plaintiffs assert that even if 22 the New York District Court did have the power to adjudicate the 23 Tort and Contract Claims, it nonetheless erred in concluding that 24 section 2(e) of the Consent was an estoppel provision rather than 25 a representation and granting summary judgment in favor of BofA 26 on the merits of these claims. The plaintiffs urge us to vacate 33 1 The court also erred, the plaintiffs assert, in 2 granting summary judgment in favor of BofA on the Declaratory 3 Claims and BofA's Counterclaims and in its determination of the 4 award of damages due to BofA on its counterclaim for conversion. 5 Finally, the plaintiffs contend that the district court 6 erred in denying their motions to amend the complaint to add the 7 "no true sale" claim and to continue summary judgment proceedings 8 in favor of additional depositions. 9 We conclude that in light of the content of the Texas 10 District Court's transfer orders, the New York District Court 11 abused its discretion in compelling the plaintiffs to litigate 12 the Tort and Contract Claims in New York. 13 the grant of summary judgment as to these claims, which we 14 conclude should properly be adjudicated in Texas. 15 with the plaintiffs with respect to their remaining contentions 16 on appeal. 17 summary judgment in favor of BofA on the Declaratory Claims and 18 Counterclaims, which had been properly transferred by the Texas 19 District Court to New York, and properly awarded damages to BofA 20 in the amount of $345,675,000 plus prejudgment interest. 21 further conclude that the district court's denial of the 22 plaintiffs' motions to amend the complaint to add the "no true 23 sale" claim and to continue summary judgment proceedings was 24 proper. 25 each of these respects. We therefore vacate We disagree We conclude that the district court correctly granted We We therefore affirm the district court's judgment in 34 DISCUSSION 1 2 3 I. Summary Judgment as to the Tort and Contract Claims 4 The plaintiffs -- AEP, HPL, and HPLR -- contend on 5 appeal that because the Tort and Contract Claims and related Tort 6 Counterclaims were never transferred by the Texas District Court 7 to the New York District Court under 28 U.S.C. § 1404, nor were 8 they properly filed in the New York District Court, the New York 9 District Court had no valid basis for exercising jurisdiction 10 over these claims. 11 plaintiffs' interpretation of 28 U.S.C. § 1404 as it relates to 12 jurisdiction, arguing that section 1404 speaks solely to the 13 power of a district court to transfer venue of an action, which, 14 they contend, is different from the question of a district 15 court's power to exercise general subject matter jurisdiction 16 over a dispute. 17 Court's decision to transfer venue of only the Declaratory Claims 18 and Counterclaims in no way affected the New York District 19 Court's general "constitutional power" to adjudicate the entire 20 dispute. 21 quotation marks omitted). 22 The defendants take issue with the Therefore, they assert, the Texas District Appellees' Br. 93-94 (emphasis, citation, and internal We are reluctant to couch our decision in terms of the 23 New York District Court's "jurisdiction" to hear these claims. 24 Cf. Arbaugh v. Y & H Corp., 546 U.S. 500, 511 (2006) (condemning 25 the use of "'drive-by jurisdictional rulings'" that conflate a 26 federal court's subject matter jurisdiction with "the question 35 1 whether the federal court had authority to adjudicate the claim 2 in suit" (quoting Steel Co. v. Citizens for Better Env't, 523 3 U.S. 83, 91 (1998))); Steel Co., 523 U.S. at 90 4 ("'Jurisdiction . . . is a word of many, too many, meanings'" 5 that is often misused to describe "the remedial powers of the 6 court" to adjudicate a claim and to impose penalties (emphasis in 7 original) (quoting United States v. Vanness, 85 F.3d 661, 663 n.2 8 (D.C. Cir. 1996))). 9 Under the circumstances presented, the New York 10 District Court abused its discretion in adjudicating the Tort and 11 Contract Claims and related Tort Counterclaims that remained 12 pending in the Texas District Court. 13 York District Court's grant of summary judgment as to these 14 claims, which we conclude should be adjudicated in Texas. 15 A. 16 We therefore vacate the New Standard of Review A district court's decision whether to stay or dismiss 17 an action on grounds of comity is reviewed for abuse of 18 discretion. 19 (citing Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 20 180, 183-84 (1952)). 21 B. See Adam v. Jacobs, 950 F.2d 89, 92 (2d Cir. 1991) The Power to Adjudicate the Tort and Contract Claims 22 To resolve the question whether the New York District 23 Court had the power to adjudicate the Tort and Contract Claims, 24 we must first examine the implications of a transfer of venue 25 under 28 U.S.C. § 1404. 26 convenience of parties and witnesses, in the interest of justice, Section 1404(a) provides that "[f]or the 36 1 a district court may transfer any civil action to any other 2 district or division where it might have been brought." 3 U.S.C. § 1404(a); see also Van Dusen v. Barrack, 376 U.S. 612, 4 616 (1964). 5 severed the Declaratory Claims and related Counterclaims from the 6 remaining Tort and Contract Claims and Counterclaims, and 7 transferred only the Declaratory Claims and related Counterclaims 8 to the New York District Court. 9 transfer order, the New York District Court proceeded, over the 10 plaintiffs' objections, to exercise jurisdiction over the entire 11 dispute. 12 while the Tort and Contract Claims and Counterclaims were still 13 actually pending in the Texas District Court. 14 therefore, is whether the New York District Court had a valid 15 basis for doing so. 16 28 Pursuant to this provision, the Texas District Court Despite the clear terms of the It then resolved all claims on summary judgment, even The question, We conclude that it did not. We begin with the premise that the question whether a 17 district court has subject matter jurisdiction over a dispute, as 18 a general matter, is substantively different from the question 19 whether a district court has, or has acquired, the power to 20 adjudicate a particular dispute. 21 matter jurisdiction "concerns a court's competence to adjudicate 22 a particular category of cases." 23 U.S. 303, 316 (2006); see also Verizon Md. Inc. v. Pub. Serv. 24 Comm'n of Md., 535 U.S. 635, 643 (2002) (explaining that subject 25 matter jurisdiction refers, as a general matter, to "the courts' 26 statutory or constitutional power to adjudicate the case" 37 It is well-settled that subject Wachovia Bank v. Schmidt, 546 1 (emphasis and internal quotation marks omitted)). Unlike venue, 2 subject matter jurisdiction "does not entail an assessment of 3 convenience. 4 the Legislature empowered the court to hear cases of a certain 5 genre?" It poses a 'whether,' not a 'where' question: Has Schmidt, 546 U.S. at 316. 6 This action was filed in the Texas District Court 7 pursuant to 28 U.S.C. § 1332(a), which grants federal district 8 courts "original jurisdiction of all civil actions" that meet the 9 requirements for federal diversity jurisdiction enumerated 10 therein. 11 District Court, then, has general federal subject matter 12 jurisdiction over the category of cases into which this dispute 13 falls. 14 action been properly filed in the New York District Court in the 15 first instance rather than in Texas, the New York District Court 16 would therefore have had the power to adjudicate these claims. 17 But, of course, it was not first filed in New York; it was filed 18 in Texas. 19 these claims, using the language of Schmidt, id., the question of 20 "whether" has been answered in the affirmative; it is the "where" 21 that remains in issue. 22 The New York District Court, no less than the Texas We have been given no reason to doubt that had this As to the New York District Court's power to decide Once the Texas District Court severed the Tort and 23 Contract Claims and Counterclaims from the Declaratory Claims and 24 Counterclaims, they became two separate actions. 25 Assocs. v. Bintliff, 398 F.2d 614, 618 (2d Cir. 1968) ("Where 26 certain claims are properly severed, the result is that there are 38 See Wyndham 1 then two or more separate 'actions,' and the district court may, 2 pursuant to § 1404(a), transfer certain of such separate actions 3 while retaining jurisdiction of others."). 4 Court ordered only the Declaratory Claims transferred to New 5 York, a plainly "deliberate" act on its part. 6 Recommendation and Order at 2, AEP Energy Servs. Gas Holding Co. 7 v. Bank of Am., N.A., Civil No. H-03-4973 (S.D. Tex. June 29, 8 2005). 9 transferee court, could not transfer to itself the Tort and 10 Contract action currently pending before the Texas District 11 Court. 12 clearly "presupposes that the action to be transferred is pending 13 in the transferor court" and does not therefore allow for an 14 action to be transferred by another district court before whom 15 the action is not then pending. 16 Fowler, 287 F.2d 43, 46-47 (2d Cir. 1961) (noting that "[t]he 17 administration of justice would be chaotic indeed if one district 18 court could order another to divest itself of jurisdiction and to 19 transfer a case properly before it"). 20 The Texas District Memorandum, It is also clear that the New York District Court, as the As we have explained, the language of section 1404(a) See Nat'l Equip. Rental, Ltd. v. There is no dispute that the Texas District Court did 21 not validly transfer the Tort and Contract Claims and 22 Counterclaims to New York. 23 to, and did, retain jurisdiction over these claims. 24 remained true even after the Texas District Court became aware of 25 "the sua sponte decision of the New York court to exercise 26 jurisdiction over the contract and tort claims and And it is undisputed that it intended 39 Indeed, this 1 counterclaims." 2 v. Bank of Am., N.A., Civil No. H-03-4973 (S.D. Tex. Sept. 22, 3 2006) (perceiving no explanation of "how the United States 4 District Court for the Southern District of New York can assert 5 jurisdiction over claims presently before this court" and 6 cautioning the parties to "be concerned whether those claims are 7 properly before the New York court and whether a judgment issued 8 by the United States District Court for the Southern District of 9 New York on the contract and tort claims and counterclaims would 10 Order at 4-5, AEP Energy Servs. Gas Holding Co. be a nullity"). 11 Nor do we conclude that the Tort and Contract Claims 12 and Counterclaims were properly brought in the New York District 13 Court. 14 promptly permitted the plaintiffs to amend their complaint, which 15 included the Tort and Contract Claims, to eliminate the 16 Declaratory Claims that had been transferred to New York; the 17 plaintiffs promptly moved in the New York District Court to amend 18 similarly the transferred complaint to eliminate the Tort and 19 Contract Claims to comport with the transfer order.8 8 Following the transfer order, the Texas District Court We place little weight on the fact that the entire original complaint, which included the Tort and Contract Claims, was transferred as part of the record from the Texas District Court to the New York District Court following the initial transfer order. This purely ministerial act could not have endowed the New York District Court with the ability to decide the Tort and Contract Claims where the Texas District Court's transfer order explicitly transferred only the Declaratory Claims to New York. This is especially true in light of the fact that only one operative complaint existed in the record at the time of the transfer order. 40 1 To be sure, following the denial of their motion to 2 amend, the plaintiffs filed an amended complaint in the New York 3 District Court that included the Tort and Contract Claims. 4 clear from the record, however, that the plaintiffs did not 5 consent to the New York District Court's adjudication of these 6 claims, and in fact repeatedly and vigorously protested it. 7 plaintiffs' November 10, 2006 letter to the New York District 8 Court, regarding their motion for leave to amend the complaint 9 prior to summary judgment in order to, inter alia, eliminate the 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 It is The Tort and Contract Claims, made their position clear: Plaintiffs never consented to this Court's exercise of subject matter jurisdiction over the AEP[] tort and contract claims, nor could they. . . . Following transfer of the declaratory claims to this Court, Plaintiffs moved for leave to amend the Complaint. Although Plaintiffs informed the Court that AEP[]'s tort and contract claims had not been transferred to New York, the Court nevertheless denied permission to amend the complaint to eliminate reference to the tort and contract claims. The Court indicated that it would allow Defendants to duplicate those claims in this Court through a mirror-image third-party complaint. In order to avoid duplication, Plaintiffs agreed that the most efficient way to implement the Court's decision was to deny the motion to amend as to the tort and contract claims. However, as the Texas court recently pointed out [in its denial of BofA's third motion to transfer these claims], these events were insufficient to convey jurisdiction on this Court that it otherwise does not have. 35 Plaintiffs' Letter to Court at 3, AEP Energy Servs. Gas Holding 36 Co. v. Bank of Am., N.A., No. 05 Civ. 4248 (S.D.N.Y. Nov. 10, 41 1 2006).9 2 presented to them by the New York District Court that the 3 plaintiffs retained the Tort and Contract Claims in the amended 4 complaint filed in New York.10 It was only when faced with the Hobson's choice 9 BofA also memorialized this course of events in a November 23, 2005 letter to the court: Your Honor may recall that the fact that there are two separate actions pending regarding this dispute, one before Your Honor and the other in the Federal Court in Texas, wherein the action before Your Honor purports to address "contract" claims and the action in the Texas Federal Court purports to separate out and separately address other contract claims under the same contract as well as purported "fraud" claims arising out of the contract, was described by Your Honor as "litigation chaos." As a result, Your Honor indicated that Your Honor "could not imagine splitting the case in two," noted that it was Plaintiffs themselves who had originally filed one action addressing all such claims and that "Plaintiffs filed one action and there will be one action here, that's it", and that there should be one set of appropriate pleadings "which would allow the trial of the whole case in New York." As a result, Your Honor directed that, if Bank of America chose to do so, it could file appropriate pleadings, such as declaratory judgment claims regarding AEP[]'s fraud claims or other appropriate pleadings, to get all of the issues before Your Honor. Your Honor further directed Bank of America to submit such pleadings by December 12, 2005 or to send Your Honor a letter by that date indicating that it was declining to do so. Defendant Bank of America's Letter to Court at 1 2, AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., No. 05 Civ. 4248 (S.D.N.Y. Nov. 23, 2005). 10 Since BofA's proposed third-party complaint was never filed, any analysis of it would be speculation at best. Furthermore, as we explain later in this Section, the New York 42 1 In light of these events, we cannot say that the 2 amended complaint that included the Tort and Contract Claims was 3 properly or voluntarily brought by the plaintiffs in New York. 4 We therefore see insufficient grounds for the New York District 5 Court's adjudication of the Tort and Contract Claims and 6 Counterclaims in this case. 7 We have recognized "the basic proposition that the 8 first court to obtain jurisdiction of the parties and of the 9 issues should have priority over a second court to do so." 10 Fowler, 287 F.2d at 45 (citing Joseph Bancroft & Sons Co. v. 11 Spunize Co. of Am., 268 F.2d 522, 524 (2d Cir. 1959)). 12 have held that "where there are two competing lawsuits, the first 13 suit should have priority, absent the showing of balance of 14 convenience or special circumstances giving priority to the 15 second." 16 76, 79 (2d Cir. 1989) (alterations, citations, and internal 17 quotation marks omitted). 18 "embodies considerations of judicial administration and 19 conservation of resources," id. at 80, and recognizes that "a 20 party who first brings an issue into a court of competent 21 jurisdiction should be free from the vexation of concurrent 22 litigation over the same subject matter," Fowler, 287 F.2d at 45 23 (citation and internal quotation marks omitted). Thus, we First City Nat'l Bank & Trust Co. v. Simmons, 878 F.2d Deference to the first filing District Court abused its discretion by considering any claim paralleling those already pending in Texas. Therefore, we decline to address whether BofA could have properly brought the Tort and Contract Claims before the New York District Court. 43 1 It is well-established, then, that "when a case is 2 brought in one federal district court[ and the complaint] 3 embraces essentially the same transactions as those in a case 4 pending in another federal district court, the latter court may 5 enjoin the suitor in the more recently commenced case from taking 6 any further action in the prosecution of that case." 7 F.2d at 45 (affirming order by New York court enjoining later- 8 filed action from proceeding in Alabama); see also Martin v. 9 Graybar Elec. Co., 266 F.2d 202, 204 (7th Cir. 1959) (citing "the Fowler, 287 10 established general rule that the party filing later in time 11 should be enjoined from further prosecution of his suit"). 12 Even in the absence of such an injunction, however, the 13 second court may be bound to stay its consideration of an action 14 in deference to the first-filed proceedings. 15 whether or not to stay or dismiss a proceeding rests within a 16 district judge's discretion, normally "[s]ound judicial 17 discretion dictates that the second court decline its 18 consideration of the action before it until the prior action 19 before the first court is terminated," Fowler, 287 F.2d at 45, 20 and "a district court can go 'beyond the allowable bounds of 21 discretion' when it refuses to stay or dismiss a duplicative 22 suit," Adam, 950 F.2d at 92 (quoting Semmes Motors, Inc. v. Ford 23 Motor Co., 429 F.2d 1197, 1204 (2d Cir. 1970) (Friendly, J.)). 24 While the decision In this case, the Texas District Court, as the court of 25 first filing, might well have enjoined the Tort and Contract 26 Claims from proceeding in New York. We are not in a position to 44 1 offer a view as to the Texas District Court's action or inaction 2 in this regard. 3 obligation that the New York District Court had to consider 4 whether to hear the Tort and Contract Claims and Counterclaims 5 that were already pending, and proceeding to trial, in the Texas 6 District Court. 7 But we need not do so to recognize the separate We addressed a similar situation in Semmes Motors. 8 There, we considered a New York district court's refusal to stay 9 its consideration of an action pending before it that had first 10 been filed in federal court in New Jersey. Even though the New 11 Jersey court in Semmes Motors, like the Texas District Court in 12 this case, had not acted to enjoin the New York lawsuit from 13 proceeding, we concluded that the New York court had an 14 independent obligation to defer to the primacy of the first-filed 15 suit and had abused its discretion in not doing so. 16 Motors, 429 F.2d at 1202-03. 17 New Jersey court could properly have enjoined prosecution of the 18 New York action . . . , and might even have been bound to do so," 19 we saw "no reason why the end result should be different when the 20 party seeking to preserve the primacy of the first court moves 21 the second court to stay its hand rather than asking the first 22 court to enjoin prosecution of the second case." 23 "Whatever the procedure," we concluded, "the first suit should 24 have priority." Semmes Although we had "no doubt that the Id. at 1202. Id. 25 In Semmes Motors it was the plaintiff who had 26 instituted both actions and preferred to press the second suit in 45 1 New York, stipulating to discontinue the first in New Jersey, 2 rather than the defendant who attempted to thwart the plaintiff's 3 chosen forum by filing second in the forum of its own choice. 4 Id. at 1202-03. 5 New York is a more logical forum than New Jersey," were 6 "[]sufficient grounds for departing from the general rule that in 7 the absence of sound reasons the second action should give way to 8 the first." 9 Neither this, nor the fact that "in a vacuum, Id. at 1203. And in Adam, we concluded that a New York district 10 court had abused its discretion by failing to abstain from 11 consideration of an action that should have been asserted as a 12 compulsory counterclaim in another, previously filed proceeding. 13 Relying on Fowler and Semmes Motors, we concluded that the 14 failure of the court in which the first filing had been made to 15 enjoin the second action was irrelevant to the second court's 16 obligation to stay its own consideration: 17 chronology would have been for the court of first impression -- 18 here, the Michigan court -- to have enjoined the second court, 19 this procedure is not mandatory. 20 by the second court's exercising judicial self-restraint." 21 950 F.2d at 93. 22 our own proceedings while exercising a willingness to enjoin 23 parties from litigating in other courts would be inconsistent." 24 Id. at 94. 25 26 "While the normal The same policies are furthered Adam, We also noted that "[f]or us to refuse to stay In other words, regardless of the action or inaction of the first court, "[s]ound judicial discretion" ordinarily 46 1 requires that the second court decline consideration of the 2 action in deference to the proceedings pending before the first 3 court. 4 by the second court's exercising judicial self-restraint" as by Fowler, 287 F.2d at 45. "The same policies are furthered 47 1 the first court's issuing an injunction. Adam, 950 F.2d at 93.11 11 As Justice Frankfurter noted in one of his dissents in Hoffman v. Blaski, 363 U.S. 335 (1960), "[s]urely, a prior decision of a federal court on the unfundamental issue of venue ought to receive [preclusive] respect from a coordinate federal court when the parties and the facts are the same." Id. at 348 (Frankfurter, J., dissenting). Hoffman consisted of two different cases heard in tandem. See id. at 336-39 (majority opinion). Justice Frankfurter's language is taken from a dissent in one of the cases, id. at 345-50 (Frankfurter, J., dissenting), expressing a view on the preclusive effect that an order of the Court of Appeals for the transferor jurisdiction, upholding a transfer, should have on a subsequent order of the Court of Appeals for the transferee jurisdiction denying the propriety of that transfer. Justice Frankfurter dissented from the judgment of the Court in that case based on the ground that the decision in that case should have been based on the concerns underlying the doctrines of res judicata and comity between sister circuit courts. He went on to note: The fact that the issue involved is the propriety of a transfer of the action only makes the case for deference to the previous decision of a coordinate court in the same litigation that much stronger. . . . It perverts those ends [of "convenience" and "justice" set forth in 28 U.S.C. § 1404(a)] to permit a question arising under § 1404(a), as here, to be litigated, in turn, before a District Court and Court of Appeals in one Circuit, and a District Court and Court of Appeals in another Circuit. . . . Id. at 349 (Frankfurter, J., dissenting). And as the Supreme Court has recognized, in reasoning that we later employed, "'transferee courts that feel entirely free to revisit transfer decisions of a coordinate court threaten to send litigants into a vicious circle of litigation.'" SongByrd, Inc. v. Estate of Grossman, 206 F.3d 172, 178 n.7 (2d Cir. 2000) (quoting Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 816 (1988)); see also Fowler, 287 F.2d at 47 (Lumbard, C.J., dissenting in part) (concurring with the general proposition that the first-filed court may enjoin proceedings in the second-filed court, but concluding that "[t]he principles of comity and judicial economy seem to me to require us to hold that [the plaintiff]'s decision first to litigate in the Alabama federal court the question of where the dispute should be tried precluded it from raising the question again in the Eastern District of New York after the Alabama federal court had ruled against it"). 48 1 BofA can identify no special circumstances sufficient 2 to overcome the presumption in favor of adjudication of the Tort 3 and Contract Claims in the Texas District Court. 4 there is absolutely no evidence that "a manifest wrong or 5 injustice" would have befallen either party had the New York 6 District Court stayed its hand. 7 at 524. 8 New York, the Texas District Court continued to adjudicate the 9 Tort and Contract Claims before finally staying proceedings in First of all, Joseph Bancroft & Sons, 268 F.2d In fact, after transferring the Declaratory Claims to 10 anticipation of the New York District Court's ruling. 11 there is no evidence that AEP's initial decision to bring suit in 12 Texas was motivated by forum-shopping. 13 v. Int'l Playtex Corp., 407 F.2d 177, 178 (2d Cir. 1969) (finding 14 special circumstances where "forum shopping alone motivate[s] the 15 choice of the situs for the first suit"); Rayco Mfg. Co. v. 16 Chicopee Mfg. Corp., 148 F. Supp. 588, 593-94 (S.D.N.Y. 1957) 17 (deferring to the second jurisdiction because forum shopping 18 motivated the plaintiff's choice of New York). 19 and Contract Claims are not so inextricably intertwined with the 20 Declaratory Claims so as to require a court adjudicating one 21 group to reach a conclusion about the other. 22 can proceed in parallel litigation before separate courts. 23 therefore conclude that, under the circumstances presented in 24 this case, it was an abuse of discretion for the New York 25 District Court to adjudicate the Tort and Contract Claims that 49 Second, See William Gluckin & Co. Finally, the Tort As a result, they We 1 had first been filed, and were in the process of being 2 adjudicated, in the Texas District Court. 3 II. Motion to Amend the Pleadings 4 Before we can address the remaining issues on appeal, 5 we must turn to the plaintiffs' contention that the district 6 court erred in denying their motion to amend the complaint 7 seeking, in relevant part, to add another declaratory claim that 8 the 1997 Transaction did not, in economic substance, constitute a 9 "true sale" of the gas, such that BGT never acquired a legal 10 ownership interest in the gas and could not therefore grant BofA 11 a valid security interest in that property. 12 point out, if we were to reverse the district court's judgment on 13 this issue, we must also vacate and remand as to the remaining 14 issues on appeal -- a finding by the district court on remand 15 that the transaction did not constitute a true sale would, the 16 plaintiffs contend, render the defendants' ownership and security 17 interests void and thus compel a finding in the plaintiffs' favor 18 on the remaining Declaratory Claims and Counterclaims. 19 remand is unnecessary in this case, however, because we conclude 20 that leave to amend the complaint was properly denied. 21 As the plaintiffs Such a We ordinarily review a district court's denial of a 22 motion to amend the pleadings for abuse of discretion. 23 Consol. Edison Corp., 488 F.3d 586, 592 (2d Cir. 2007); Milanese 24 v. Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001). 25 "if the denial of leave to amend is based upon a legal 50 Gorman v. However, 1 interpretation we review it de novo." 2 (alterations and internal quotation marks omitted). 3 Gorman, 488 F.3d at 592 Rule 15 of the Federal Rules of Civil Procedure 4 provides that leave to amend the pleadings should be "freely 5 give[n] . . . when justice so requires." 6 15(a)(2). 7 amend its pleadings in the absence of a showing by the nonmovant 8 of prejudice or bad faith." 9 F.2d 344, 350 (2d Cir. 1993). Fed. R. Civ. P. "The rule in this Circuit has been to allow a party to Block v. First Blood Assocs., 988 We have referred to the prejudice 10 to the opposing party resulting from a proposed amendment as 11 among the "most important" reasons to deny leave to amend. 12 Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 13 1981) ("Reasons for a proper denial of leave to amend include 14 undue delay, bad faith, futility of amendment, and perhaps most 15 important, the resulting prejudice to the opposing party."). 16 Amendment may be prejudicial when, among other things, it would 17 "require the opponent to expend significant additional resources 18 to conduct discovery and prepare for trial" or "significantly 19 delay the resolution of the dispute." 20 State Id. The defendants contend that because the plaintiffs' 21 motion to amend was not made until "three years after they filed 22 their complaint and only after defendants moved for summary 23 judgment," the district court was correct to deny the plaintiffs' 24 "belated attempt to inject a new legal theory" into the case on 25 grounds of undue delay and prejudice. 26 However, instead of denying the motion as untimely, the court 51 Appellees' Br. 59-60. 1 denied it on the ground that the proposed amendment would have 2 been "futile," AEP I, 2007 WL 2428474 at *8, 2007 U.S. Dist. 3 LEXIS 63421, at *24, based on its conclusion that "the record 4 does not permit a finding that what the Bank of America did was a 5 sham," Transcript of Record at 49, AEP Energy Servs. Gas Holding 6 Co. v. Bank of Am., N.A., No. 05 Civ. 4248 (S.D.N.Y. Jan. 31, 7 2007). 8 the proposed amendment fails to state a legally cognizable claim 9 or fails to raise triable issues of fact. 10 11 Leave to amend may be denied on grounds of futility if See Milanese, 244 F.3d at 110-11. It is not altogether clear whether the district court's 12 ruling was based upon a legal interpretation of the plaintiffs' 13 proposed claim or on a factual determination of the claim's 14 ability to withstand summary judgment, which may affect our 15 standard of review. 16 (reviewing denial of motions for leave to amend de novo where 17 district court "denied the motions . . . as futile based on [its] 18 interpretation of the [statute under which the proposed claims 19 were purportedly brought]"); Milanese, 244 F.3d at 110 (reviewing 20 for abuse of discretion district court's determination that 21 amendment, sought in response to summary judgment motions, would 22 be futile because the record did not enable the proposed claim to 23 withstand summary judgment). 24 however, because we decline to affirm the district court's ruling 25 on the ground of futility. See, e.g., Gorman, 488 F.3d at 592 We need not resolve that question, 52 1 Based on the record before us, we are unable to 2 conclude that the evidence adduced by the plaintiffs on summary 3 judgment was insufficient to create a triable issue of fact as to 4 whether the Bammel Gas transaction was a sham intended, in sum 5 and substance, to enable Enron to inflate its year-end revenues 6 fraudulently while hiding the true extent of its liabilities and 7 therefore did not involve a "true sale" of the Storage Gas to 8 BGT. 9 whether the plaintiffs' proposed "no true sale" claim is a On the other hand, doubts have also been raised as to 10 legally cognizable theory that would enable them to void the 11 entire transaction and BofA's corresponding security interest 12 therewith. 13 finding that the transaction did not constitute a "true sale" for 14 accounting purposes would necessarily compel the conclusion that 15 it did not effect a legal transfer of property rights under the 16 parties' agreements. 17 whether the plaintiffs may be estopped from asserting that the 18 transaction was a sham in light of their participation in the 19 2001 restructuring of the transaction and extensive due diligence 20 in connection therewith. 21 In particular, it is open to question whether a And there is a further open issue as to We need not reach these difficult issues, however, 22 because we conclude that the denial of AEP's motion to amend its 23 pleadings was not an abuse of discretion. 24 remand to the district court for it to make a discretionary 25 ruling as to which its disposition is so clearly sound. 26 plaintiffs filed the motion to amend on October 25, 2006, three 53 It would be futile to The 1 years after the commencement of the lawsuit and several months 2 after cross-summary judgment motions had been filed. 3 plaintiffs concede on appeal, the resolution of their proposed 4 "no true sale" claim may well have been dispositive of all other 5 claims and counterclaims that had, until then, been the subject 6 of extensive discovery and litigation between the parties. 7 at the time the plaintiffs sought to introduce this new claim, 8 the defendants had already filed summary judgment papers, 9 including in support of their motion and in opposition to the As the And 10 plaintiffs' motion, consisting of thousands of pages addressing 11 the existing claims and counterclaims at issue. 12 the impact of the proposed new claim on the existing proceedings 13 would have been substantial. 14 have required the defendants "to expend significant additional 15 resources" to defend and would have "significantly delay[ed] the 16 resolution of the dispute." 17 In other words, Its assertion would undoubtedly Block, 988 F.2d at 350. The plaintiffs offer a credible reason for their delay: 18 that they were estopped from challenging BGT's ownership of the 19 gas until the reversal of the Texas state court judgment in 20 August 2006. 21 them to have acted as they did is not alone sufficient to 22 discount the significant prejudice resulting from permitting them 23 to file their amended complaint in light of the circumstances 24 presented, the length and complexity of these proceedings, and 25 the late stage of litigation at which the motion was made. 26 therefore conclude that it was not an abuse of discretion for the The fact that there may have been good reason for 54 We 1 district court to deny the motion to amend. 2 Inc. v. Cola Petroleum, Ltd., 760 F.2d 442, 446 (2d Cir. 1985) 3 (affirming denial of motion to amend as "especially prejudicial 4 given the fact that discovery had been completed and [the 5 defendant] had already filed a motion for summary judgment"); see 6 also Krumme v. WestPoint Stevens, Inc., 143 F.3d 71, 88 (2d Cir. 7 1998) (same where "case was near resolution and discovery had 8 been completed"). 9 See Ansam Assocs., We therefore affirm the district court's denial of the 10 plaintiffs' motion to amend the complaint to add the "no true 11 sale" claim. 12 13 III. Summary Judgment as to the Plaintiffs' Declaratory Claims and BofA's Related Counterclaims 14 The plaintiffs -- AEP, HPL, and HPLR -- have asserted 15 six claims (Counts I-VI of their Second Amended and Supplemental 16 Complaint) seeking declarations that the defendants may not 17 foreclose on or otherwise interfere with the plaintiffs' right to 18 use the Storage Gas in the Storage Facility, that BofA's security 19 interest is limited to the "personal property" natural gas 20 contained in the Storage Facility as of May 2001, and that the 21 defendants released or waived their rights to the gas under the 22 Operative Agreements by virtue of the Enron Settlement Agreement. 23 Following oral argument before it, the district court 24 concluded that defendant BofA held a "valid, presently- 25 enforceable security interest in 55 billion cubic feet of gas 55 1 that was not subordinated in the 2001 transaction in any way." 2 AEP I, 2007 WL 2428474, at *1, 2007 U.S. Dist. LEXIS 63421, at 3 *5. 4 bankruptcy constituted a default under the Operative Agreements, 5 and that the Enron Settlement Agreement that resolved BofA's 6 claims in the bankruptcy court did not affect BofA's right to 7 enforce its security against the plaintiffs. 8 2428474, at *1, 2007 U.S. Dist. LEXIS 63421, at *5. 9 court therefore granted summary judgment to the defendants on all The court further concluded that Enron's petition in Id., 2007 WL The district 10 of the Declaratory Claims. 11 BofA's favor on its counterclaims for conversion, breach of 12 bailment, and replevin. 13 Dist. LEXIS 63421, at *6 *7.12 14 It also granted summary judgment in Id., 2007 WL 2428474, at *2, 2007 U.S. For the reasons set forth below, we agree with the 15 district court that BofA retained a valid security interest in 16 the Storage Gas under the Operative Agreements that vested upon 17 Enron's bankruptcy, and that the plaintiffs' refusal to return 18 the gas thereafter constituted conversion. 19 the grant of summary judgment to BofA on the plaintiffs' 20 Declaratory Claims and on the counterclaims for conversion, 21 breach of bailment, and replevin. 22 A. We therefore affirm Standard of Review 12 The conversion-based counterclaims, being in response to the plaintiffs' Declaratory Claims, had been transferred by the Texas District Court and were properly before the New York District Court for adjudication. 56 1 We review the district court's grant of summary 2 judgment de novo, "construing the evidence in the light most 3 favorable to the non-moving party and drawing all reasonable 4 inferences in its favor." 5 Corp., 604 F.3d 712, 720 (2d Cir. 2010) (citation and internal 6 quotation marks omitted). 7 there exists no genuine issue of material fact and, based on the 8 undisputed facts, the moving party is entitled to judgment as a 9 matter of law." Fincher v. Depository Trust & Clearing "Summary judgment is appropriate where Oneida Indian Nation of N.Y. v. Madison County, 10 605 F.3d 149, 156 (2d Cir. 2010) (alteration and internal 11 quotation marks omitted); see also Fed. R. Civ. P. 56(c). 12 B. The Use of Extrinsic Evidence 13 The parties agree that the relevant transaction 14 documents are governed by Texas law.13 15 whether these agreements are ambiguous on their face, such that They dispute, however, 13 However, section 10 of Appendix B to the Participation Agreement, which recites the governing provisions for all of the Operative Agreements, provides that, unless otherwise stated, the Participation Agreement, the Security Agreement, and the Guaranty "shall be governed by and interpreted in accordance with the laws of the State of New York" and the Pressurization Agreement, Sale Agreement and Marketing Agreement "shall be governed by the laws of the State of Texas." 2001 Participation Agreement, app. B § 10 (emphasis removed). In addition, the Enron Settlement Agreement is also governed by New York law. And the Right To Use Agreement and the Consent -- to which the parties apparently refer in stipulating to the use of Texas law -- are expressly governed by Texas law, with the exception of the "rights, duties, obligations, benefits, protections, and immunities of the Trustee" under the Consent, which "shall be governed by the laws of the State of New York." Consent § 12(d) (emphasis removed). Because Texas law and New York law are substantially similar in the relevant respects, this distinction does not affect our resolution of the issues concerning these agreements on appeal. 57 1 extrinsic evidence is necessary to determine the parties' intent. 2 Under Texas law, whether a contract is ambiguous is a 3 question of law for the court to decide "by looking at the 4 contract as a whole in light of the circumstances present when 5 the contract was entered." 6 (Tex. 1983). 7 than one reasonable interpretation. 8 Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). 9 if a contract is ambiguous on its face or when applied to the Coker v. Coker, 650 S.W.2d 391, 394 A contract is ambiguous if it is subject to more See Nat'l Union Fire Ins. Only 10 context at hand may extrinsic evidence be considered to explain 11 the terms of the contract. 12 rendered ambiguous simply because the parties disagree about its 13 meaning. 14 S.W.3d 342, 345 (Tex. 2006). 15 evidence, summary judgment is inappropriate. 16 v. Clifton, 755 S.W.2d 925, 931 (Tex. App. 1988).14 14 Id. Of course, a contract is not Seagull Energy E&P, Inc. v. Eland Energy, Inc., 207 When there is conflicting extrinsic See Sec. Sav. Ass'n New York law is substantially similar to Texas law in this regard. Under New York law, "[w]hether or not a writing is ambiguous is a question of law to be resolved by the courts." W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162, 566 N.E.2d 639, 642, 565 N.Y.S.2d 440, 443 (1990). A contract is unambiguous if "on its face [it] is reasonably susceptible of only one meaning." Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 570, 780 N.E.2d 166, 171, 750 N.Y.S.2d 565, 570 (2002). On the other hand, "[a] contract is ambiguous if the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings." N.Y.C. Off-Track Betting Corp. v. Safe Factory Outlet, Inc., 28 A.D.3d 175, 177, 808 N.Y.S.2d 70, 73 (1st Dep't 2006) (citations and internal quotation marks omitted). Only where a contract is ambiguous may extrinsic evidence be used to determine the parties' intent. Greenfield, 98 N.Y.2d at 569, 780 N.E.2d at 171, 750 N.Y.S.2d at 569. In such a circumstance, 58 1 Based on our review of the Operative Agreements, we 2 conclude that there is no indication that these agreements are 3 ambiguous on their face or in the context of this dispute, either 4 individually or when read together. 5 properly declined to consider extrinsic evidence in interpreting 6 these contracts. 7 8 C. The district court therefore The Scope of the Parties' Rights Under the Operative Agreements 9 "If there is no ambiguity, the construction of the 10 written instrument is a question of law for the court." Myers v. 11 Gulf Coast Minerals Mgmt., 361 S.W.2d 193, 196 (Tex. 1962); see 12 also Seagull, 207 S.W.3d at 345. 13 interpreting a contract is to ascertain and give effect to the 14 intent of the parties as that intent is expressed in the 15 contract." 16 we 'examine and consider the entire writing in an effort to 17 harmonize and give effect to all the provisions of the contract 18 so that none will be rendered meaningless.'" 19 original) (quoting Coker, 650 S.W.2d at 393). 20 "'[n]o single provision taken alone will be given controlling 21 effect; rather, all the provisions must be considered with 22 reference to the whole instrument.'" 23 S.W.2d at 393). 24 documents should be construed together to discern the parties' The "primary concern when Seagull, 207 S.W.3d at 345. "To discern this intent, Id. (emphasis in In doing so, Id. (quoting Coker, 650 Where contemporaneous documents exist, these summary judgment is inappropriate. See Hartford Accident & Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 172, 305 N.E.2d 907, 909, 350 N.Y.S.2d 895, 898 (1973). 59 1 intent. 2 Corp., 799 F.2d 1081, 1083 (5th Cir. 1986).15 3 See Tex. Commerce Bank Nat'l Ass'n v. Nat'l Royalty The plaintiffs urge us to conclude that the district 4 court erred in deciding that the Operative Agreements granted 5 defendant BofA a valid, enforceable security interest in the gas 6 that gained priority over the plaintiffs' rights upon Enron's 7 bankruptcy. 8 Agreement, executed between HPL and Enron with BofA's consent, 9 gave HPL the right to "quiet enjoyment" of the Storage Gas "free They point to the fact that the Right To Use 10 of adverse claims of Third Parties, of any kind or nature" for 11 the duration of the sublease. 12 To Use Agreement § 1.01 (definition of "Quiet Enjoyment")). 13 order to guarantee such unfettered use of the gas, they contend, 14 Enron (through LeaseCo) agreed to use only "Exchange Gas," not 15 the Storage Gas contained in the Storage Facility, to satisfy any 16 obligations to BofA that may arise under the Operative 17 Agreements. 18 plaintiffs also note that in the Consent itself, BofA expressly 15 Appellants' Br. 75 (quoting Right Id. (citing Right To Use Agreement § 8.01). In The Similarly, under New York law, when the terms of a contract are clear and unambiguous, the construction of the contract presents a question of law to be determined by the court. Town of Harrison v. Nat'l Union Fire Ins. Co., 89 N.Y.2d 308, 316, 675 N.E.2d 829, 832, 653 N.Y.S.2d 75, 78 (1996). "[A]greements are construed in accord with the parties' intent." Greenfield, 98 N.Y.2d at 569, 780 N.E.2d at 171, 750 N.Y.S.2d at 569. Accordingly, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Id. at 569, 780 N.E.2d at 171, 750 N.Y.S.2d at 569. Where the terms of a contract are clear, the court may properly grant summary judgment as a matter of law. See Wesolowski, 33 N.Y.2d at 172, 305 N.E.2d at 909, 350 N.Y.S.2d at 898. 60 1 released plaintiffs HPL and HPLR "'from all liabilities and 2 obligations under the Operative Agreements, whether now or in the 3 future existing or arising,'" and agreed to enforce the 4 obligations imposed by these agreements "'solely against'" Enron. 5 Appellants' Br. 76 (quoting Consent § 2(g)). 6 argue that, together, these provisions evince an intent to give 7 HPL and HPLR unfettered use of the gas to the exclusion of any 8 preexisting rights or security interest of BofA, and to direct 9 all recourse in any event solely against Enron. The plaintiffs We do not think, 10 though, that this piecemeal reading of the transaction documents 11 accurately reflects the manifest intent of the parties. 12 It seems to us clear from the plain language of the 13 Operative Agreements that the intent of the Right To Use 14 Agreement and the Consent was to provide the plaintiffs with 15 unfettered use of the Storage Gas for the duration of the 16 sublease in all ordinary circumstances absent an event of default 17 -- the same rights as HPL had under the original 1997 agreements, 18 before HPL was sold to AEP. 19 filed its petition in bankruptcy, see 2001 Guaranty § 5.01(c) ("A 20 'Guaranty Default' shall exist if . . . Enron or any of its 21 Principal Subsidiaries shall become the subject of a Bankruptcy 22 Event."16) (emphasis removed); 2001 Participation Agreement 16 Once a default occurred when Enron A "Bankruptcy Event" occurs with respect to an entity if (a) such [entity] shall generally not pay such [entity]'s debts as such debts become due . . . ; or (b) any proceeding shall be instituted by or against such [entity] seeking to adjudicate such [entity] as 61 1 § 2 Guaranty Default occurs"), there is nothing in the documents that 3 purports to negate or subordinate the defendants' rights, 4 remedies, or interest in the gas that they would otherwise have 5 under the Operative Agreements. 6 8.01(e) (stating that an event of default includes when "[a] The Right To Use Agreement, which grants HPL the right 7 to use the gas for the duration of the sublease, provides that 8 "notwithstanding the terms, provisions and restrictions in any 9 [of the Operative Agreements], LeaseCo . . . will cause and 10 allow[ the Storage Gas] to be available to HPL at the Storage 11 Facility for HPL's right to Quiet Enjoyment at all times during 12 the [t]erm [of the sublease]." 13 The plaintiffs are correct that pursuant to this agreement, 14 LeaseCo granted HPL "Quiet Enjoyment" of the Storage Gas "free of 15 adverse claims of Third Parties, of any kind or nature, in, to or 16 with respect to the [Storage] Gas, or any part thereof, that 17 interfere with, restrict or impede the Enjoyment of the [Storage] Right to Use Agreement § 2.01(b). bankrupt or insolvent, or seeking liquidation, windingup, reorganization, rearrangement, adjustment, protection, relief, or recomposition of such [entity] or such [entity]'s debts under any Bankruptcy Law, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for such [entity] or for any substantial part of such [entity]'s property and, in the case of any such proceeding instituted against such [entity] (but not instituted by such [entity]), shall not be controverted within 45 days and shall remain undismissed or unstayed for a period of 90 days after such proceeding is filed. 2001 Participation Agreement, app. A (definition of "Bankruptcy Event"). 62 1 Gas." Id. § 1.01 (definition of "Quiet Enjoyment"). But we do 2 not read this clause as restricting the existing security 3 interest held by BofA in the gas. 4 out the existing security interest from this prohibition by 5 designating it a "Permitted Lien" under the agreement, "[t]he 6 existence of [which] shall not be a breach by LeaseCo of [its 7 obligation to provide HPL with quiet enjoyment of the gas]." 8 § 2.01(b); see also id. § 1.01 ("'Permitted Liens' means . . . 9 [inter alia] the Lien of the Existing Security Agreement." The parties explicitly carved Id. 10 (emphasis removed)). 11 reinforce this understanding by providing, in the covenants, that 12 "[t]he Trustee shall not create any Lien on the Storage Gas 13 (other than the Lien in favor of [BofA] under the Security 14 Agreement)." 15 The Pressurization Agreement appears to 2001 Pressurization Agreement § 5.02(a). The Right To Use Agreement was subject to BofA's 16 consent. See Consent at 2 ("[T]he execution and delivery of this 17 Consent by each of the Consent Parties [including BofA] is a 18 condition precedent to the effectiveness of . . . the Sublease 19 and the Right to Use Agreement."). 20 by BofA is not helpful to the plaintiffs. 21 the scope of this consent extended to "the use of the [Storage] 22 Gas by [HPL] as contemplated by the Right to Use Agreement . . . 23 [and] to any and all agreements related thereto," but only "so 24 long as such related agreements do not increase the obligations 25 or reduce the rights of the Trustee . . . or BofA under the 26 Operative Agreements." However, the Consent executed It makes clear that Consent § 2(a)(iii) (emphasis added). 63 1 Accordingly, BofA consented to the plaintiffs' right to use the 2 gas only to the extent that this arrangement did not alter, to 3 the defendants' detriment, the defendants' existing rights and 4 obligations under the Operative Agreements then in place; and by 5 implication, then, BofA withheld its consent to any aspect of the 6 right-to-use arrangement that would have the effect of increasing 7 the defendants' obligations or, more importantly, reducing their 8 rights to the gas in any way under the Operative Agreements. 9 Indeed, section 11 of the Consent unambiguously 10 forecloses the plaintiffs' argument that the parties intended by 11 these agreements to subordinate BofA's security interest to the 12 plaintiffs' rights in the gas. 13 of doubt, nothing herein shall impair the lien and security 14 interest of BofA under the Security Agreement or, except as 15 expressly set forth in Section 2 hereof, reduce the rights and 16 remedies of BofA under the Security Agreement." 17 The only limitation set forth in "section 2 [t]hereof" on the 18 rights and remedies of BofA under the Security Agreement was that 19 prior to exercising these rights upon an event of default, BofA 20 and the Trustee were required first to afford the plaintiffs 21 notice of the default and an opportunity to cure it.17 17 It provides that "[f]or avoidance Consent § 11. In this regard, any reliance the plaintiffs may place on the exception clause of section 11, providing that the terms set forth in section 2 of the Consent may act to "reduce the rights and remedies of BofA under the Security Agreement," is therefore misplaced. Section 2 of the Consent grants the consent to the Right To Use Agreement and provides, in relevant part, for notice and cure rights to the plaintiffs in the event of a default. See Consent §§ 2(b)(ii)-(iii) (providing that "[i]n the event of a default . . . [HPL] shall have the right (but not the obligation) 64 1 Accordingly, we look next to the Security Agreement to 2 determine the rights and remedies of BofA with respect to the 3 gas. 4 priority of the parties' rights and interest in the gas before 5 and after a default: 6 the Storage Gas] only, the Security Interest of the Secured Party 7 therein . . . until the Trustee (or its designee) exercises its 8 rights under Section 5.02 of the Guaranty, shall be subordinate 9 to [the plaintiffs'] right to borrow and use such Natural Gas in Section 3 of the Security Agreement delineates the relative "With respect to the [secured portion of 10 accordance with the terms of the Pressurization Agreement." 11 Security Agreement § 3(c)(ii)(emphasis added). 12 agreement, entitled "Remedies upon Event of Default," further 13 clarifies the interplay between the parties' respective rights to 14 the gas before and after a Guaranty Default occurs: 15 16 17 18 2001 Section 6 of the Notwithstanding any provisions to the contrary in this Agreement, so long as no Guaranty Default shall have occurred and be continuing, neither the Secured Party [BofA] to cure such Default within the applicable cure periods," and that the Trustee "shall not exercise any remedies under the Operative Agreements in respect of any Default" unless and until written notice of default and an opportunity to cure has been afforded to HPL, and HPL has not cured); see also id. § 2(c) (same rights and obligations with respect to BofA). Therefore, section 2 of the Consent "reduces" the rights and remedies of BofA only insofar as it forestalls the exercise of these rights and remedies in the event of default until after notice and an opportunity to cure has been provided. It does not, as the plaintiffs contend, negate these rights and remedies altogether or subordinate them absolutely to the consent to use. And in fact, section 2 of the Consent further stipulates that the parties have "agreed and acknowledged that any 'Guaranty Default' . . . is an Event of Default which could affect [the plaintiffs'] rights under or pursuant to the Right to [U]se Agreement." Id. § (2)(c)(i). 65 1 2 3 4 5 6 7 8 9 10 11 12 13 nor any Note Purchaser or Bank Lender shall exercise its remedies (and the Note Purchasers and Bank Lenders shall not request the Secured Party to exercise such remedies) under any provision of this Agreement or otherwise available at law or in equity against or affecting the Storage Gas. . . . Upon the occurrence of a Guaranty Default, the Secured Party's rights and remedies with regard to the [secured portion of the Storage Gas] shall be limited to those specified in Section 5.02 of the Guaranty. Id. § 6(b) (emphasis added). 14 The Security Agreement thus provides that the security 15 interest of BofA in the Storage Gas is subordinate to HPL's right 16 to use this gas, but only until a Guaranty Default occurs. 17 Thereupon, BofA's exclusive recourse lies in the Trustee's 18 exercise of its rights and remedies under section 5.02 of the 19 Guaranty (or in BofA's assumption and exercise of these rights 20 itself as a representative of the Trustee, see id. § 6(a)(ii)). 21 Section 5.02 of the Guaranty permits the Trustee, "[u]pon the 22 occurrence and during the continuance of a Guaranty 23 Default, . . . to exercise all rights and remedies available at 24 law, in equity, by statue, by agreement or otherwise including, 25 without limitation, the right to give Enron the Settlement 26 Notice." 27 to cure the default by delivering Exchange Gas of equivalent 28 value to the Trustee, "Enron shall, at the Trustee's request (at 29 the direction of [BofA]), cause the Trustee to have such access 30 and rights to the Storage Facility . . . to permit the Trustee or 31 its designee to withdraw Storage Gas from the Storage Facility." 32 Id. § 5.02(b). 2001 Guaranty § 5.02. Upon such notice, if Enron fails In addition, both the Guaranty and the 66 1 Pressurization Agreement unambiguously provide that upon the 2 Trustee's exercise of its rights and remedies under section 5.02 3 of the Guaranty, the Pressurization Agreement -- and therefore 4 the plaintiffs' rights to use the gas -- terminates. 5 § 5.03(b); 2001 Pressurization Agreement § 6.03(b). 6 See id. In sum, we conclude that the Operative Agreements, when 7 read together, provided the plaintiffs with the right to quiet 8 enjoyment and use of the gas for the duration of the sublease so 9 long as no event of default had occurred or any default had been 10 cured. Upon an event of default, the plaintiffs' right to use 11 the gas was subordinated to BofA's security interest and the 12 defendants became entitled to exercise their rights and remedies 13 under the Operative Agreements to foreclose on this interest. 14 And we find nothing in the Operative Agreements that acted in the 15 2001 Transaction to negate or subordinate the security interest 16 that BofA was granted in the Storage Gas in the event of a 17 default. 18 We have considered the remainder of the plaintiffs' 19 arguments based on the law of contracts and find them without 20 merit.18 18 For example, the plaintiffs cite section 8.01 of the Right To Use Agreement in support of their claim that BofA relinquished all rights to the Storage Gas in the 2001 Transaction and was required thereafter to look only to "Exchange Gas" from Enron in satisfaction of any obligation. But this section cannot reasonably be read as broadly as the plaintiffs suggest. Section 8.01 states that "LeaseCo shall use only Exchange Gas to satisfy its obligations under Article III of the Pressurization Agreement to make withdrawals of Natural Gas from the Storage Facility." Right To Use Agreement § 8.01 (emphasis added). Article III of the Pressurization Agreement required 67 1 D. Summary Judgment as to The Declaratory Claims LeaseCo to withdraw the Storage Gas from the Storage Facility pursuant to a fixed schedule over a period of months in 2004 -or, at its option, permit LeaseCo to provide Exchange Gas instead -- to give to Enron to sell on the open market. Enron would then remit the proceeds of the sale to BGT so that BGT could repay to BofA the principal amount of the $218 million loan. Article III thus provided the mechanism by which Enron originally intended to repay the BofA loan at its maturity in 2004. This mechanism was retained intact from the 1997 Transaction to the 2001 Transaction, regardless of the fact that the 2001 Transaction granted HPL the right to use the Storage Gas that was supposed to be sold in 2004 for the next thirty years. Accordingly, in light of this conflict, section 8.01 of the Right to Use Agreement alters this mechanism in one simple way: it makes the option to use Exchange Gas to satisfy the 2004 loan obligation that was present in the 1997 Transaction mandatory under the 2001 agreements. This change was intended to provide LeaseCo an alternate way of satisfying the 2004 loan obligation without withdrawing the Storage Gas and thereby impacting HPL's rights to continued use of this gas for the duration of the 30year sublease. By its terms, then, this provision requires LeaseCo to use Exchange Gas to satisfy its obligation to BofA only in this specific instance; it does not touch upon the parties' rights and obligations in any other event. Similarly, the plaintiffs quote the Consent in support of their assertion that BofA released HPL "from all liabilities and obligations under the Operating Agreements, whether now or in the future existing or arising," and agreed "to enforce payment and performance . . . solely against LeaseCo and [Enron]" in an effort to subordinate BofA's security interest in the gas and vest the plaintiffs with exclusive rights to use in all circumstances. See Consent § 2(g). But the plaintiffs neglect to point out that this provision, by its terms, refers only to the specific bundle of obligations assigned to LeaseCo by HPL in the Assignment and Assumption Agreement entered into as part of the 2001 Transaction restructuring. See id. ("In connection with the assignments referred to in clause (a)(i) of this Section 2 [referring to the 'Assigned Obligations' under the Assignment and Assumption Agreement]. . . ."). It therefore does nothing more than confirm that, pursuant to this assignment, LeaseCo now stands in the former shoes of HPL for purposes of the 2001 Transaction. It does not affect the defendants' rights and remedies in any other respect nor, certainly, in the event of a default. 68 1 We agree with the district court that Enron's filing in 2 bankruptcy constituted an event of default under the Operative 3 Agreements and that, following this default, BofA had a "valid, 4 presently-enforceable security interest in [the] gas that was not 5 subordinated in the 2001 transaction in any way." 6 2428474, at *1, 2007 U.S. Dist. LEXIS 63421, at *5. 7 the parties' agreements make clear that this security interest 8 was subordinated to the plaintiffs' rights to use the gas only 9 until the Trustee exercised its rights and remedies under section AEP I, 2007 WL The terms of 10 5.02 of the Guaranty in the event of a default. 11 default, however, the plaintiffs were entitled, pursuant to the 12 Consent, to receive notice of and an opportunity to cure the 13 default before the defendants could proceed to exercise their 14 rights and remedies under the Security Agreement and the Guaranty 15 to foreclose on the gas. 16 bankruptcy stay in the wake of the Enron Settlement Agreement, 17 the defendants sent Notices of Default and Settlement Notices to 18 the plaintiffs, and the plaintiffs chose neither to cure the 19 default nor (as was their option under the Purchase Option 20 Agreement) to purchase the Storage Gas outright. 21 then, pursuant to the contracts, the defendants had the superior 22 right to foreclose upon and withdraw the gas. 23 Upon an event of Accordingly, following the lift of the At this point, We also agree with the district court's conclusion that 24 the Enron Settlement Agreement did not affect the defendants' 25 ability to enforce their rights with respect to, and security 26 interest in, the gas. See id., 2007 WL 2428474, at *1, 2007 U.S. 69 1 Dist. LEXIS 63421, at *5. The plaintiffs argue that as part of 2 the Enron Settlement Agreement, the defendants released any and 3 all claims against Enron relating to the Bammel Gas transaction 4 and thereby extinguished any subsequent right of recourse they 5 may have had under the Operative Agreements against the gas. 6 the Settlement Agreement provides to the contrary. But 7 The Settlement Agreement allows the defendants' proofs 8 of claim against Enron relating to the Bammel Gas transaction to 9 be admitted in the bankruptcy proceedings, but only on the 10 condition that the defendants' recovery on these claims must come 11 solely from the proceeds of the sale of the Storage Gas -- which 12 the defendants were then entitled to withdraw and sell under the 13 terms of the Operative Agreements in any event -- and not from 14 any other asset controlled by Enron or at issue in the 15 bankruptcy. 16 confirming the Settlement Agreement explicitly lifted the 17 automatic bankruptcy stay "for the sole purpose of allowing [the 18 defendants] to attempt to realize upon the value of the [Storage] 19 Gas," including by sending Settlement Notices and Notices of 20 Default to Enron and to the plaintiffs and thereafter allowing 21 the plaintiffs an opportunity to cure prior to foreclosing on the 22 gas. 23 Corp., No. 01-16034 (Bankr. S.D.N.Y. Jan. 15, 2004). 24 for the allowance and settlement of these claims in this manner, 25 the defendants agreed to release any other claims against Enron In order to effectuate this recovery, the order Order Approving Settlement Agreement at 9, In re Enron 70 In return 1 relating to the Bammel Gas transaction that may then exist or 2 thereafter arise. 3 The Settlement Agreement therefore does not alter or 4 extinguish the defendants' rights under the Operative Agreements 5 to foreclose on and withdraw the Storage Gas following an event 6 of default. 7 claims against the gas in any way. 8 the defendants' recovery on their allowed claims against Enron to 9 the proceeds of the sale of this gas pursuant to the terms of, Nor does it release the defendants' interest in or It does no more than limit 10 and in accordance with their rights under, the Operative 11 Agreements. 12 Enron or otherwise at issue in the bankruptcy proceedings from 13 being the target of the defendants' recovery on their allowed 14 claims. 15 In doing so, it insulates any other assets held by It may be worth noting in this connection that the 16 plaintiffs do not own the Storage Gas; BGT does. 17 rights to use this gas to LeaseCo in the 2001 Transaction, and 18 LeaseCo in turn subleased those rights to HPL. 19 filed for bankruptcy, the plaintiffs' rights to use this gas were 20 effectively extinguished. 21 control and withdraw the gas pursuant to the terms of the 22 Operative Agreements. 23 upon its security interest in the gas. 24 BGT leased the But once Enron BGT regained the right, as owner, to And BofA gained the right to foreclose Moreover, pursuant to the Enron Settlement Agreement, 25 the defendants' recovery on their allowed claims against Enron is 26 contingent on their exercise of these rights. 71 The plaintiffs 1 nonetheless continue to retain physical control over the Storage 2 Gas and the Storage Facility. 3 default, the plaintiffs have refused the defendants access to the 4 gas in order to exercise their rights. 5 plaintiffs' arguments, the defendants are not now seeking to 6 recover directly against the plaintiffs for the value of their 7 claims against Enron that were released through the settlement in 8 bankruptcy. 9 exercise their contractual rights. 10 Despite a continuing event of Thus, contrary to the Instead, the defendants are simply attempting to Finally, we agree with the district court that the gas 11 contained in the Storage Facility is properly characterized as 12 "personal property" natural gas and that the plaintiffs are 13 estopped as a matter of law from claiming otherwise.19 14 2007 WL 2428474, at *15-*17, 2007 U.S. Dist. LEXIS 63421, at 15 *43 *48. 16 personal property natural gas." 17 2007 U.S. Dist. LEXIS 63421, at *44. 18 bailment, and replevin counterclaims, as a matter of law, may 19 only lie with regard to personal property. 20 Forwarding, Inc. v. Am. Flange, 993 S.W.2d 262, 267 (Tex. App. 19 AEP I, As BofA concedes, its security interest "is limited to Id., 2007 WL 2428474, at *15, And its conversion, See Int'l Freight In their briefs on appeal to this Court, the parties address this issue in connection with the question of damages due to BofA on the counterclaims, rather than in connection with the district court's rulings as to liability on the Declaratory Claims. Notwithstanding this fact, we address this argument in this section of our opinion, as part of our discussion of the plaintiffs' Declaratory Claims, because this is the posture in which it arose in the district court and because it relates to the district court's grant of summary judgment in favor of BofA on Count I of the Declaratory Claims. See AEP I, 2007 WL 2428474, at *17, 2007 U.S. Dist. LEXIS 63421, at *48 *49. 72 1 1999) (bailment); Lighthouse Church of Cloverleaf v. Tex. Bank, 2 889 S.W.2d 595, 599 n.4 (Tex. App. 1994) (conversion); Bull v. 3 Jones, 29 S.W. 804, 806, 9 Tex. Civ. App. 346, 349 (1894) 4 (replevin). 5 contained in the Storage Facility constitutes "real property" 6 rather than "personal property," and because the defendants' 7 interest in the gas is limited to "personal property," they have 8 no entitlement to the Storage Gas. The plaintiffs contend that the natural gas 9 As the district court found, however, the plaintiffs 10 have repeatedly represented, in both the transaction documents 11 and in tax and regulatory filings, that the natural gas contained 12 in the Storage Facility constitutes "personal property" natural 13 gas and that no "native gas" -- or "real property" natural gas -- 14 existed in the facility after 1996. 15 Participation Agreement § 5.01(m) ("The entire quantity of 16 Natural Gas to be sold . . . constitutes . . . personal property 17 of the Sellers."); see also AEP I, 2007 WL 2428474, at *16, 2007 18 U.S. Dist. LEXIS 63421, at *44 *45 ("From March 1996 to February 19 2003, HPL filed monthly G-3 Forms with the Texas Railroad 20 Commission, where it reported that there was no native gas 21 present in the Bammel Reservoir."). 22 seriously claim that the Storage Facility contains only "real 23 property" natural gas to which the defendants have no 24 entitlement. 25 559, 570 (Tex. App. 2007) ("[A] party to a contract [may not] See, e.g., 1997 The plaintiffs cannot now See Coffey v. Singer Asset Fin. Co., 223 S.W.3d 73 1 take a position inconsistent with the contract's provisions, to 2 the prejudice of another."). 3 We further conclude that the two recently created 4 regulatory filings, not submitted by the plaintiffs to the 5 district court until after summary judgment motions were filed, 6 which appear to assert that the Storage Facility contains mostly 7 "native gas," and the plaintiffs' expert report purporting the 8 same conclusion, are insufficient to create a genuine issue of 9 material fact on this question, especially in light of our 10 conclusion regarding the inability of the plaintiffs to make such 11 an assertion contrary to their previous representations in this 12 regard. 13 Cir. 2000) ("[P]laintiffs cannot defeat a motion for summary 14 judgment by responding with affidavits recanting that earlier 15 testimony."); Trans-Orient Marine Corp. v. Star Trading & Marine, 16 Inc., 925 F.2d 566, 572 (2d Cir. 1991) ("[A] party may not, in 17 order to defeat a summary judgment motion, create a material 18 issue of fact by submitting an affidavit disputing his own prior 19 sworn testimony."); UBS AG v. HealthSouth Corp., 645 F. Supp. 2d 20 135, 145 n.14 (S.D.N.Y. 2008) ("Just as a party may not, in order 21 to defeat a summary judgment motion, create a material issue of 22 fact by submitting an affidavit disputing his own prior sworn 23 testimony, so too [a party] cannot [in litigation] take a 24 position of convenience contrary to its prior statements to 25 [regulatory authorities]." (citations and internal quotation 26 marks omitted)). See generally Margo v. Weiss, 213 F.3d 55, 60-61 (2d 74 1 We therefore affirm the district court's grant of 2 summary judgment to the defendants on the plaintiffs' Declaratory 3 Claims. 4 E. Summary Judgment as to the Declaratory Counterclaims 5 In light of its conclusion that the defendants had a 6 superior existing right to the gas, the district court granted 7 summary judgment to BofA, appearing as BONY's representative for 8 purposes of the counterclaims, on its counterclaims for 9 conversion, breach of bailment agreement, and replevin based on 10 the plaintiffs' refusal to relinquish the gas to the defendants 11 when asked. 12 the gas by refusing to turn it over to BofA when BofA requested 13 it." 14 93022, at *2 *3. The court concluded that the plaintiffs "converted AEP II, 2007 WL 4458117, at *1, 2007 U.S. Dist. LEXIS 15 Under Texas law, a bailment is created when (1) the 16 delivery of personal property by one person to another is made in 17 trust for a specific purpose, (2) there is an acceptance of 18 delivery, (3) there exists an express or implied contract that 19 the trust will be carried out, and (4) an understanding exists 20 under the terms of the contract that the property will be 21 returned to the transferor or dealt with as the transferor 22 directs. 23 plaintiff who establishes breach of a bailment contract may gain 24 relief through an action for conversion. See Int'l Freight Forwarding, 993 S.W.2d at 267. A Id. at 269. 25 Conversion, in turn, is the "wrongful assumption and 26 exercise of dominion and control over the personal property of 75 1 another to the exclusion of, or inconsistent with, the owner's 2 rights." 3 2006) (citing Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 446 4 (Tex. 1971)). 5 that: (1) the plaintiff owned or had possession of the property 6 or entitlement to possession; (2) the defendant unlawfully and 7 without authorization assumed and exercised control over the 8 property to the exclusion of, or inconsistent with, the 9 plaintiff's rights as an owner; (3) the plaintiff demanded return Burns v. Rochon, 190 S.W.3d 263, 267-68 (Tex. App. To establish conversion, a plaintiff must prove 10 of the property; and (4) the defendant refused to return it. 11 at 268. 12 Id. We agree with the district court that summary judgment 13 as to these counterclaims is appropriate. Upon the occurrence of 14 the Guaranty Default, the plaintiffs' superior right to the 15 Storage Gas was extinguished and the defendants were entitled to 16 possession of the gas under the Operative Agreements, subject to 17 the notice and cure provisions. 18 provided with notice of the default and failed to exercise their 19 option to cure, BofA became entitled, as the Trustee's 20 representative, to exercise its right to take immediate 21 possession of the Storage Gas. 22 § 6(a)(ii). 23 refused, that refusal therefore constituted conversion. 24 wrongful intent is not an element of conversion under Texas law, 25 see Winkle Chevy-Olds-Pontiac, Inc. v. Condon, 830 S.W.2d 740, Once the plaintiffs had been See 2001 Security Agreement And when BofA demanded access to the gas and AEP 76 Because 1 746 (Tex. App. 1992), the plaintiffs' subjective belief that BofA 2 was not entitled to the gas does not preclude their liability. 3 IV. Summary Judgment as to Damages 4 The plaintiffs identify several errors that they 5 contend the district court made in calculating the damages due to 6 BofA in connection with the counterclaims. 7 district court erred as a matter of law in awarding damages to 8 BofA in excess of the amount outstanding on its loan and without 9 taking into account BofA's obligation to mitigate these damages. 10 They also assert an error as to the date of conversion, which the 11 district court fixed at May 14, 2004, but which the plaintiffs 12 contend should have been July 22, 2002. 13 that the district court improperly weighed conflicting evidence 14 when it granted summary judgment as to the value of the gas and 15 the costs of withdrawing this gas. 16 arguments to be meritorious.20 17 A. They assert that the Finally, they contend We find none of these Damages In Excess of the Loan Amount 18 The plaintiffs contend that the district court erred in 19 permitting BofA to recover damages in excess of the value of its 20 secured loan. 21 fact that BofA asserted the counterclaims in its capacity as 22 BONY's representative, as was its right under the Operative 20 The plaintiffs fail to account, however, for the As discussed in note 19, supra, the plaintiffs also contend that the district court erred in determining that the natural gas contained in the Storage Facility constitutes "personal property" natural gas for the purpose of assessing damages. For the reasons set forth in our discussion of this issue in Section III(D), supra, we reject this argument. 77 1 Agreements. 2 Energy Servs. Gas Holding Co. v. Bank of Am., N.A., No. 05 Civ. 3 4248 (S.D.N.Y. Jan. 26, 2006) (asserting counterclaims "as 4 Administrative Agent . . . and as representative of the Trustee 5 of the BGT"); 2001 Security Agreement § 6(a)(ii). 6 BofA was not limited to the value of its security interest with 7 respect to the damages for conversion. 8 9 See Answer, Defenses and Counterclaims at 25, AEP Therefore, Under Texas law, "[a] plaintiff who establishes conversion is entitled to return of the property" or, in the 10 alternative, "can sue for the value of the property." 11 Chevy-Olds-Pontiac, Inc. v. Condon, 830 S.W.2d 740, 746 (Tex. 12 App. 1992). 13 are determined by the fair market value at the place and time of 14 conversion together with legal interest thereon." 15 v. Acetylene Oxygen Co., 990 S.W.2d 486, 497 (Tex. App. 1999); 16 see also Burns, 190 S.W.3d at 270 ("If the plaintiff in a 17 conversion action elects to recover the value of the property, 18 damages are typically determined by the fair market value at the 19 time and place of conversion."). 20 was therefore entitled to bring suit by and through the Trustee 21 for the full value of the converted property. 22 to the value of BofA's security interest. 23 Winkle If the plaintiff elects the latter, "actual damages Varel Mfg. Co. BGT, as the owner of the gas, It was not limited As the district court explained, "this case is not 24 about BofA's recovery of the value of the loan. 25 commenced to determine who has greater rights with regard to the 26 gas, and damages are to be awarded to BofA based on the value of 78 The action was 1 the converted property, not based on the amount due on the loan." 2 AEP II, 2007 WL 4458117, at *5, 2007 U.S. Dist. LEXIS 93022, at 3 *15 *16 (emphasis in original). 4 was entitled to recover the full market value of the converted 5 gas as of the date on which it was converted. 6 B. We agree and conclude that BofA 7 Obligation to Mitigate The plaintiffs assert that the district court erred in 8 failing to find that the defendants had a duty to mitigate 9 damages and that they neglected to do so on two occasions. See 10 AEP II, 2007 WL 4458117, at *6, 2007 U.S. Dist. LEXIS 93022, at 11 *16. 12 when it released its security interest in the 25 Bcf of gas sold 13 by Enron to AEP during the 2001 Transaction restructuring, and 14 that BofA should have ensured that the $94 million paid by AEP to 15 Enron for this gas was thereafter given to BGT in partial 16 repayment of the loan. 17 failed to mitigate when it ceased pursuing its claims against 18 Enron in bankruptcy and instead entered into the Enron Settlement 19 Agreement in satisfaction of these claims. First, the plaintiffs contend that BofA failed to mitigate Second, the plaintiffs contend that BofA We disagree. 20 At the outset, the plaintiffs fail to explain why BofA, 21 as a secured lender in the 1997 Transaction, should not have been 22 permitted to voluntarily release part of its security in order to 23 accomplish the 2001 restructuring, and why it would have been 24 obligated to control the use of any proceeds from the sale of 25 this gas paid to Enron by AEP. 26 explain how BofA could have been expected to foresee and mitigate More importantly, they do not 79 1 unknown future damages years before the conversion took place. 2 See, e.g., Trinity Universal Ins. Co. v. Fuller, 524 S.W.2d 335, 3 338 (Tex. App. 1975) (explaining that the duty to mitigate arises 4 only once the victim of wrongdoing "has knowledge of the fact[s] 5 which make avoidance of the consequences necessary," such as 6 "knowledge of the wrongdoer's breach of contract prior to the 7 occurrence of the damages"). 8 9 The plaintiffs also fail to point to any authority for the proposition that an aggrieved party must mitigate damages 10 when deprived of possession of its property through conversion. 11 And in citing cases involving mitigation by a secured party, they 12 continue to ignore the fact that BofA acts in the counterclaims 13 as BONY's representative, and that its damages are not based upon 14 the value of its security. 15 Co., 35 F.3d 643, 659-60 (2d Cir. 1994) ("Generally, the duty to 16 mitigate is a limitation on consequential damages," and where 17 plaintiffs do not seek such damages, but seek damages for the 18 value of converted property, mitigation is not required.). 19 See, e.g., Bank of N.Y. v. Amoco Oil The plaintiffs also fail to recognize that BofA did not 20 "abandon" its claims relating to the Bammel Gas transaction 21 against Enron in the bankruptcy, but instead settled those claims 22 for value. 23 withdrawal and sale of the Storage Gas -- that underlies the 24 instant litigation. 25 action "should be reduced by the amount it could have recovered And it is the recovery of that value -- through the Their argument that BofA's recovery in this 80 1 in the bankruptcy" had it not abandoned its claims, Appellants' 2 Br. 88, is therefore inapposite. 3 C. The Date of Conversion 4 The plaintiffs next contend that the district court 5 erred in determining the date of conversion to be May 14, 2004, 6 the date on which BofA demanded possession of the gas by means of 7 letter to AEP and HPL following the lifting of the automatic 8 bankruptcy stay in the wake of the Enron Settlement Agreement and 9 after Enron, and the plaintiffs, had failed to cure the default 10 in response to the Notices of Default and Settlement Notices. 11 Rather, the plaintiffs contend, the date of conversion should be 12 fixed at July 22, 2002, when BofA first demanded possession of 13 the gas following Enron's bankruptcy and AEP refused, prompting 14 the filing of the 2002 Texas state court action.21 15 July 2002 date instead of the May 2004 date, the plaintiffs 16 assert, would reduce the ultimate damage award by approximately 17 $180 million. 18 Using the Under Texas law, a cause of action for conversion 19 accrues "upon the discovery of facts supporting the cause of 20 action, or upon demand and refusal, whichever occurs first." 21 The parties dispute whether the plaintiffs belatedly raised this issue in the district court for the first time on a motion for reconsideration, such that it should now be reviewed for abuse of discretion. However, the district court nonetheless considered the merits of this argument in the first instance on the motion to reconsider. We therefore review this issue de novo. See Lowrance v. Achtyl, 20 F.3d 529, 534 (2d Cir. 1994) (construing a denial of motion for reconsideration on the merits as "essentially an affirmance on the merits," and "review[ing] de novo the [court's] reconsideration, on a motion for reconsideration, of the merits of the summary judgment motion"). 81 1 Nelson v. Am. Nat'l Bank, 921 S.W.2d 411, 415 (Tex. App. 1996). 2 To establish conversion, a plaintiff must establish that "at the 3 time of conversion, he was the owner of the property, had legal 4 possession of it or was entitled to possession." 5 Bank of El Paso, 850 S.W.2d 757, 760 (Tex. App. 1993). 6 Whitaker v. We agree with the district court that "BofA was not 7 entitled to the gas in 2002, because BofA could not have taken 8 possession of the gas until it served a Settlement Notice on 9 Enron[ and] . . . BofA could not serve this Settlement Notice 10 until 2004 when the stay in the Enron bankruptcy was lifted." 11 AEP III, 2008 WL 925433, at *2, 2008 U.S. Dist. LEXIS 30587, at 12 *7. 13 entitled to possession of the gas because it could not enforce 14 its rights to take possession until after the stay was lifted. 15 The Texas Court of Appeals effectively echoed this view when it 16 vacated the 2003 state court judgment in favor of BofA on the 17 grounds that it violated the automatic bankruptcy stay. 18 BofA was not entitled to demand possession of the gas until after 19 the stay was lifted in 2004, AEP's refusal of its demand prior to 20 that point did not constitute conversion. 21 During the pendency of the bankruptcy stay, BofA was not Because Once the stay was lifted, however, BofA was entitled to 22 possession of the gas and to enforce its rights to gain that 23 possession. 24 stay was issued, BofA sent Notices of Default and Settlement 25 Notices, in conformity with the terms of the Operative 26 Agreements, to Enron and LeaseCo, with copies to AEP and HPL. Accordingly, shortly after the order lifting the 82 1 Enron did not perform its obligations under the Guaranty in 2 response to those letters, nor did the plaintiffs exercise their 3 options to cure the default or to purchase the gas. 4 on May 14, 2004, BofA demanded that AEP withdraw and transfer 5 custody of 55 Bcf of Storage Gas in the Storage Facility to BofA. 6 AEP's refusal constituted conversion as of the date of BofA's 7 demand. 8 conversion as May 14, 2004. 9 D. Accordingly, The district court therefore correctly set the date of The Value of the Natural Gas 10 The district court correctly determined that, under 11 Texas law, BofA, as the representative of BONY (the Trustee of 12 the owner of converted property), could elect between the return 13 of the property and money damages. 14 Accordingly, the district court determined that BofA was entitled 15 to $347,325,000, which was the Houston Ship Channel market value 16 of the natural gas on the date of conversion, reduced by the 17 reasonable costs of removal of the gas from the facility. 18 AEP II, 2007 WL 4458117, at *1, 2007 U.S. Dist. LEXIS 93022, at 19 *3. BofA elected money damages. See 20 The plaintiffs do not dispute this calculation. Nor do 21 they dispute the use of the Houston Ship Channel Index to 22 determine the market price of the natural gas on the date of 23 conversion. 24 court. 25 93022, at *12 ("AEP does not dispute that the HSC price listed is 26 an accurate reflection of the market price of natural gas on that Indeed, they conceded this fact in the district See id., 2007 WL 4458117, at *4, 2007 U.S. Dist. LEXIS 83 1 date."). 2 calculation of damages, as a general matter, is inherently 3 inappropriate for summary judgment and that they submitted 4 sufficient evidence to create a genuine dispute of material fact 5 as to the valuation of the gas in this case. 6 The sole argument they advance on appeal is that the But courts do routinely award damages that are readily 7 calculable based on the undisputed facts on summary judgment. 8 See, e.g., Atari, Inc. v. Games, Inc., 2005 WL 1053729, 2005 U.S. 9 Dist. LEXIS 8129 (S.D.N.Y. May 4, 2005), amended on 10 reconsideration on other grounds, 2005 WL 1294403, 2005 U.S. 11 Dist. LEXIS 10457 (S.D.N.Y. May 31, 2005), aff'd, 164 F. App'x 12 183 (2d Cir. 2006); Wells Fargo Bank Nw., N.A. v. Taca Int'l 13 Airlines, S.A., 315 F. Supp. 2d 347 (S.D.N.Y. 2003). 14 the dispute that the plaintiffs point to in this case is not one 15 of fact, but of law: whether the defendants' interest in the gas 16 was restricted, under the transaction documents, to "cushion gas" 17 as opposed to "working gas" as a matter of law. 18 Further, "If the plaintiff in a conversion action elects to 19 recover the value of the property, damages are typically 20 determined by the fair market value at the time and place of 21 conversion." 22 that the defendants' interest is restricted to "cushion gas," as 23 opposed to "working gas." 24 market value than "working gas" because it cannot be withdrawn 25 from the facility, is the amount of gas that is necessary to 26 pressurize a facility and that must be present at all times when Burns, 190 S.W.3d at 270. The plaintiffs argue "Cushion gas," which has a much lower 84 1 the facility is in use. 2 above and beyond this amount that can be withdrawn for use at any 3 time. 4 is often contained within porous rock, the plaintiffs contend, 5 the process of removing this gas from the facility would cost 6 millions of dollars, reducing its market value drastically, and 7 they submitted an expert declaration to this effect. 8 9 "Working gas" is any gas in the facility Because cushion gas is the facility's bottommost gas and However, the assumption underlying the plaintiffs' expert evidence regarding the market value of the gas -- that the 10 gas should be considered exclusively "cushion gas" in nature -- 11 appears to be flawed. 12 which was amended and restated in the 2001 Transaction, 13 identifies the gas at issue in the transaction as "80,000,000 14 MMBtus of Natural Gas . . . currently stored as recoverable 15 cushion gas and as working gas in the Storage Facility." 16 Participation Agreement at 1 (emphasis added). 17 that was pledged to BofA as security. 18 Agreement §§ 1, 3(a)(vii). 19 in 2001, BofA released its security in 25 Bcf (roughly equivalent 20 to 25,000,000 MMBtus) of this gas, to be sold outright to AEP, 21 and retained a security in the remaining 55 Bcf (approximately 22 55,000,000 MMBtus) of Storage Gas. 23 §§ 1, 3(a)(vii) (granting security interest in the "Pledged Gas," 24 defined as "up to 54,999,965 MMBtus of Storage Gas present in the 25 Bammel Storage Facility in Houston, Texas from time to time"). 26 In the event of a default, the Guaranty grants the Trustee the The original Participation Agreement, 1997 This is the gas See 1997 Security When the transaction was restructured 85 See 2001 Security Agreement 1 right to take custody of and withdraw "the aggregate quantity (in 2 MMBtus) of Storage Gas" contained in the facility. 3 § 5.02(b) (emphasis added). 4 2001 Guaranty The document signed by BofA in the 2001 Transaction 5 that references "cushion gas" is the Consent. In addition, the 6 Right To Use Agreement, to which BofA was not itself a party, 7 also refers to the gas at issue as "Cushion Gas." 8 Use Agreement, §§ 1.01, 2.01(b). 9 form the foundation upon which the plaintiffs base their See Right To These documents, we surmise, 10 argument. However, the use of the term "cushion gas" in these 11 agreements does not appear to be intended to restrict the 12 defendants' interest in the Storage Gas. 13 apparently refer to the gas as "cushion gas" because this is the 14 primary use to which it was contemplated under the Operative 15 Agreements that the Storage Gas would be put. 16 reason that the Pressurization Agreement is entitled in full, 17 "Pressurization and Storage Gas Borrowing Agreement": because the 18 plaintiffs' right to use the Storage Gas was restricted primarily 19 to keeping it in the facility for pressurization purposes - 20 i.e., as cushion gas - and, from time to time, to borrowing a 21 quantity, subject to replacement, for their own working use - 22 i.e., as working gas. 23 at intro. ("To facilitate the transactions contemplated by this 24 Participation Agreement, (a) [HPL and HPLR] and the Trustee are 25 entering into the Pressurization Agreement . . . pursuant to 26 which the Trustee will permit (i) HPL[] to use the Storage Rather, the agreements It is for this See, e.g., 1997 Participation Agreement, 86 1 Gas . . . for pressurization of the Storage Facility, and (ii) 2 [HPL and HPLR] to borrow, replace, and reborrow the Storage Gas 3 from time to time, in accordance with the operational 4 requirements of the Storage Facility."). 5 Further, the Right To Use Agreement defines "Cushion 6 Gas" in a manner that encompasses the entire quantity of Storage 7 Gas then stored in the facility that would be dedicated to HPL's 8 exclusive "quiet enjoyment," as distinguished from whatever 9 additional quantities of "Working Gas" may be provided from 10 outside sources to be stored in and withdrawn from the facility 11 from time to time. 12 (b) (defining "Cushion Gas" as the natural gas currently in the 13 Storage Facility dedicated to HPL's use, and "Working Gas" as 14 "all Natural Gas that, from time to time, is stored in the 15 Storage Facility that is not Cushion Gas"). 16 agreements do appear to contemplate that the plaintiffs will use 17 the Storage Gas as cushion gas -- i.e., as the base on which to 18 pressurize the facility for the storage and withdrawal of 19 additional gas -- such a use does not change the inherent nature 20 of the secured property: which is natural gas.22 22 See Right To Use Agreement §§ 1.01, 2.01(a)- While these We note, in this regard, the defendants' argument to the district court that the term "'cushion gas' does not connote a type of gas but rather a quantity of gas -- the amount needed to pressurize a facility," see AEP II, 2007 WL 4458117, at *3, 2007 U.S. Dist. LEXIS 93022, at *9 (emphasis in original), and the plaintiffs' expert's concession that natural gas is physically fungible for these two purposes. 87 1 We further agree with the district court that the 2 Operative Agreements evinced an understanding that the Storage 3 Gas would be readily removable from the facility, and that this 4 gas was intended to be valued at market rates. 5 WL 4458117, at *4, 2007 U.S. Dist. LEXIS 93022, at *12. 6 Pressurization Agreement provided for the entire quantity of 7 Storage Gas to be withdrawn and sold in 2004 to repay the BofA 8 loan, and the Marketing Agreement established that this gas was 9 to be valued at the Houston Ship Channel Index price at the time See AEP II, 2007 The 10 of sale. The Houston Ship Channel market price for natural gas 11 on May 14, 2004 -- the date of conversion -- was readily 12 calculable at $6.315 per MMBtu. 13 calculated the value of the approximately 55 Bcf of natural gas 14 to be $347,325,000. 15 the time of the district court's decision, 128 Bcf of gas in the 16 facility, more than enough for the Storage Gas to be removed 17 without creating any pressurization problems. From this, the district court Further, it is undisputed that there was, at 18 Accordingly, we conclude that the district court did 19 not err in calculating the value of the natural gas on summary 20 judgment. 21 E. 22 The Calculation of Withdrawal Costs The district court reduced the award of damages by the 23 cost the defendants would have incurred had they withdrawn the 24 Storage Gas in May 2004. 25 million in costs, consisting of $1.65 million to withdraw the gas 26 from the facility, $1.65 million to transport it to the Houston The plaintiffs claimed a total of $18.7 88 1 Ship Channel, and a $15.4 million "capacity reservation fee." 2 The defendants contended that the withdrawal would have been 3 cost-free. 4 that it look to the storage and withdrawal contract between the 5 Storage Facility and its largest unrelated commercial storage 6 customer to determine a reasonable withdrawal fee, which was 7 three cents per MMBtu, for a total of $1.65 million. 8 2008 WL 3338203, at *1, 2008 U.S. Dist. LEXIS 61264, at *3-*5. 9 The defendants do not challenge this conclusion on appeal. 10 However, the district court found the other purported costs 11 proposed by the plaintiffs to be unreasonable and declined to 12 credit them as a matter of law. 13 2008 U.S. Dist. LEXIS 61264, at *5 6. 14 The district court adopted the plaintiffs' suggestion See AEP IV, See id., 2008 WL 3338203, at *2, Because neither party challenges on appeal the district 15 court's determination of the withdrawal fee at three cents per 16 MMBtu, we consider only the court's conclusion as a matter of law 17 that the plaintiffs were not entitled to reduce the award by the 18 cost of transportation or a capacity reservation fee. 19 Morgan Chase Bank v. Altos Hornos de Mex., S.A. de C.V., 412 F.3d 20 418, 428 (2d Cir. 2005) (holding that arguments not made in the 21 parties' opening briefs on appeal are waived). 22 the district court correctly rejected an award of these costs. 23 As the district court concluded, the fact that the court used the 24 Houston Ship Channel Index price as a reasonable proxy for the 25 market value of the gas does not mean that the defendants would 26 have been required to physically transport the gas to the Houston 89 See JP We conclude that 1 Ship Channel in order to sell it. The unrefuted evidence showed 2 to the contrary that the defendants were entitled to delivery of 3 the gas in the vicinity of the Storage Facility, and could have 4 sold it there, thereby avoiding any cost of transportation. 5 regard to the purported "capacity reservation fee," the district 6 court properly determined that this cost was not related in any 7 way to the withdrawal of the Storage Gas nor found in any 8 contract between the parties. 9 10 V. Federal Rule 56(f) Motion to Permit Further Depositions 11 With Finally, the plaintiffs appeal from the district 12 court's denial of their motion pursuant to Federal Rule of Civil 13 Procedure 56(f) to continue summary judgment proceedings in order 14 to permit them to take the depositions of two individuals 15 formerly affiliated with Enron, including former Enron CFO Andrew 16 Fastow, who first became available to testify following a 2006 17 plea agreement finalized shortly before summary judgment. 18 depositions were relevant only to the plaintiffs' Tort and 19 Contract Claims, inasmuch as the plaintiffs represented that they 20 would be material to the question of BofA's knowledge of fraud, 21 and not to the Declaratory Claims. 22 district court's decision as to the Tort and Contract Claims on 23 procedural grounds, this issue is moot. 90 These Because we vacate the 1 2 CONCLUSION For the foregoing reasons, we vacate the district 3 court's grant of summary judgment to BofA with respect to the 4 Tort and Contract Claims, concluding that these claims and the 5 related counterclaims should be adjudicated in Texas. 6 the district court's judgment in all other respects. 91 We affirm
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