IN RE: ATP Oil & Gas Corporation, No. 2:2015cv03141 - Document 86 (E.D. La. 2017)

Court Description: ORDER AND REASONS granting 80 Motion to Dismiss for Failure to State a Claim. Signed by Judge Sarah S. Vance on 1/4/17. (jjs)
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IN RE: ATP Oil & Gas Corporation Doc. 86 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA RODNEY TOW, TRUSTEE VERSUS CIVIL ACTION NO. 15- 3141 T. PAUL BULMAHN, ET AL. SECTION “R” (1) ORD ER AN D REASON S Rodney Tow, the Chapter 7 bankruptcy trustee for ATP Oil and Gas Corporation, sues defendants—former officers of ATP—for fraudulent transfer. Defendants m ove to dism iss the Trustee’s com plaint for failure to state a claim . 1 For the following reasons, the Court grants the m otion. I. BACKGROU N D A. Partie s an d Claim s Rodney Tow is the Chapter 7 Trustee for ATP Oil and Gas Corporation. ATP was incorporated under Texas law in 1991. Before filing for bankruptcy in August 20 12, ATP engaged in the acquisition, developm ent, and 1 R. Doc. 80 . Dockets.Justia.com production of oil and natural gas properties in the Gulf of Mexico and other locations. 2 The Trustee originally sued eighteen defendants, m ost of whom are form er officers or directors of ATP, for breaches of fiduciary duty, fraudulent transfer, civil conspiracy, and aiding and abetting breaches of fiduciary duty. In a previous order, the Court dism issed the Trustee’s Second Am ended Com plaint. 3 In doing so, the Court granted the Trustee leave to replead only two claim s: (1) his claim that defendant Bulm ahn breached his fiduciary duty of loyalty by causing ATP to enter unfavorable contracts to benefit “friends” at the corporation’s expense; and (2) his constructive fraudulent transfer claim , in which he sought to void and recover cash and stock bonuses paid to defendants Bulm ahn, Tate, Reese, Morris, and Godwin under Section 24.0 0 5 of the Texas Business and Com m erce Code and Section 548(a)(1) of the Bankruptcy Code. In the Trustee’s Third Am ended Complaint he asserts only the latter claim . The rem aining defendants, therefore, are: 2 3 T. Paul Bulm ahn, form er Chief Executive Officer and Chairm an of ATP's Board of Directors; Leland Tate, former President of ATP; R. Doc. 41 at 2. R. Doc. 71. 2 Albert L. Reese, J r., form er Chief Financial Officer; George R. Morris, form er Chief Operating Officer; and Keith R. Godwin, form er Chief Accounting Officer. B. Factu al Backgro u n d On May 20 , 20 10 , the Deepwater Horizon drilling rig exploded and sank in the Gulf of Mexico, creating “one of the m ost pervasive and devastating environm ental disasters in the history of the United States.”4 In response, the federal government issued m oratoria on new and existing deepwater drilling in the Gulf of Mexico. 5 Although the m oratoria were eventually lifted, the Governm ent instituted new rules and regulations that delayed the resum ption of drilling and increased the cost of decom m issioning deepwater wells. 6 The Trustee alleges these developments deferred or elim inated m any of ATP’s stream s of revenue and increased its costs of operation. 7 As a result, ATP experienced im m ediate difficulties servicing its debt and paying expenses. 8 The Trustee alleges that “as early as May 20 10 , ATP began to have problem s with liquidity . . . and entered the zone of insolvency.”9 4 5 6 7 8 9 R. Doc. 72 at 4. Id. at 5. Id. Id. at 6. Id. Id. 3 Following the BP Oil Spill, ATP invested substantial sum s in two capital projects. The first involved ATP's Cheviot Field in the North Sea. In late 20 0 8, ATP contracted for the construction of a floating production platform , the “Octabuoy,” which was to be deployed at the Cheviot Field upon com pletion in 20 14. 10 The Trustee alleges that although initial estim ates indicated that the Cheviot Field contained $ 70 2.5 million in proven undeveloped reserves and $ 1,120 .1 m illion in probable undeveloped reserves, these estim ates were decreased between J anuary 1 and J une 30 , 20 12. 11 The new figures suggested that the field contained only $ 25.5 m illion in proven undeveloped reserves and $ 538.8 m illion in probable undeveloped reserves. 12 The second project involved ATP’s efforts to obtain drilling licenses in the Eastern Mediterranean Sea for two ATP subsidiaries. 13 According to the Trustee, in or around J une 20 11, ATP provided funding for ATP East Med Num ber 1 B.V. (“ATP-EM-1”) to purchase a share of three licenses off the coast of Israel. 14 The Trustee alleges that “it was estim ated that ATP would 10 11 12 13 14 Id. at 7. Id. Id. Id. at 8. Id. 4 need to spend $ 250 m illion on those licenses before production.”15 He further alleges that although ATP-EM-1 successfully acquired a share of all three licenses, the Israeli government seized ATP’s interest in two of the licenses because “it was discovered that they were held in violation of Israeli law.”16 As to the second ATP subsidiary, ATP East Med Num ber 2 B.V. (“ATP-EM-2”), the Trustee alleges that ATP funded the subsidiary’s bids on unspecified “work” in the Eastern Mediterranean. 17 He further contends that although “m illions of dollars were spent,” ATP-EM-2 was unable to obtain any drilling licenses. 18 Ultim ately, ATP proved unable to survive the disruptions caused by the BP Oil Spill and drilling m oratoria. On August 17, 20 12, ATP filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Southern District of Texas. 19 ATP’s case was converted to a Chapter 7 proceeding on J une 26, 20 14, and Tow was appointed Trustee for ATP’s estate. 20 The Trustee contends that, despite ATP’s poor perform ance and eventual bankruptcy, defendants Bulm ahn, Tate, Morris, Reese, and Godwin 15 16 17 18 19 20 Id. Id. Id. Id. Id. at 4. Id. 5 obtained a total of over $ 9 m illion in cash and $ 3.5 m illion in stock bonuses during the years 20 10 and 20 11. 21 C. Th is Law s u it The Trustee filed suit on behalf of ATP’s estate against ATP’s officers and directors in the Southern District of Texas. Initially, the case was assigned to the Bankruptcy Court for the Southern District of Texas. On J une 29, 20 15, J udge Gray Miller withdrew the bankruptcy reference and transferred the case to the District Court for the Southern District of Texas. 22 Defendants then m oved to transfer the case under the first-to-file rule, arguing that the Trustee’s com plaint substantially overlapped with securities class actions that were being litigated before this Court. 23 J udge Miller granted the m otion on J uly 28, 20 15 and transferred the Trustee's lawsuit to this Court. 24 On J uly 27, 20 15, the Trustee filed a four-count First Am ended Com plaint. 25 On September 24, 20 15, the Trustee amended his pleadings 21 Id. R. Doc. 3. 23 R. Doc. 6. In the Fifth Circuit, the first-to-file rule is a discretionary doctrine, which provides that “when related cases are pending before two federal courts, the court in which the case was last filed m ay refuse to hear it if the issues raised by the cases substantially overlap.” Cade Co. v. W hataburger of Alice, Inc., 174 F.3d 599, 60 3 (5th Cir. 1999). 24 R. Doc. 9. 25 R. Doc. 8. 6 22 and filed a Second Am ended Complaint. 26 Following the Court’s order resolving m otions to dism iss the Second Am ended Com plaint, the Trustee filed a Third Am ended Com plaint, alleging fraudulent transfer based on the com pensation that ATP paid to defendants in 20 10 and 20 11. Defendants now m ove to dism iss the Third Amended Com plaint. II. LEGAL STAN D ARD To survive a Rule 12(b)(6) m otion to dism iss, the plaintiff m ust plead enough facts “to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (20 0 9) (quoting Bell Atl. Corp. v. Tw om bly , 550 U.S. 544, 570 (20 0 7)). A claim is facially plausible when the plaintiff pleads facts that allow the court to “draw the reasonable inference that the defendant is liable for the m isconduct alleged.” Id. at 678. A court m ust accept all well-pleaded facts as true and m ust draw all reasonable inferences in favor of the plaintiff. Lorm and v. U.S. Unw ired, Inc., 565 F.3d 228, 239 (5th Cir. 20 0 9); Baker v. Putnal, 75 F.3d 190 , 196 (5th Cir. 1996). A legally sufficient com plaint m ust establish m ore than a “sheer possibility” that the plaintiff’s claim is true. Iqbal, 556 U.S. at 678. It need not contain detailed factual allegations, but it m ust go beyond labels, legal 26 R. Doc. 41. 7 conclusions, or form ulaic recitations of the elem ents of a cause of action. Id. In other words, the face of the com plaint m ust contain enough factual m atter to raise a reasonable expectation that discovery will reveal evidence of each element of the plaintiff’s claim. Lorm and, 565 F.3d at 257. If there are insufficient factual allegations to raise a right to relief above the speculative level, or if it is apparent from the face of the com plaint that there is an insuperable bar to relief, the claim m ust be dism issed. Tw om bly , 550 U.S. at 555. III. D ISCU SSION In the Third Am ended Com plaint, the Trustee seeks to avoid cash and stock bonuses paid to defendants in 20 10 and 20 11 as fraudulent conveyances under the Texas Uniform Fraudulent Transfer Act (“TUFTA”) and Section 548(a)(1) of the Bankruptcy Code. Under TUFTA, a bankruptcy trustee may avoid a debtor’s transfers that defraud the estate’s creditors. Tex. Bus. & Com. Code § 24.0 0 8(a)(1); see also Spring St. Partners-IV, L.P. v. Lam , 730 F.3d 427, 437 (5th Cir. 20 13). Fraudulent transfers are divided into two types: actual fraudulent transfers, and constructive fraudulent transfers. 8 Here, the Trustee alleges only constructive fraud under section 24.0 0 5 of TUFTA. 27 Section 24.0 0 5 provides that a transfer is constructively fraudulent if the debtor m ade the transfer: without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (A) was engaged or was about to engage in a business or a transaction for which the rem aining assets of the debtor were unreasonably sm all in relation to the business or transaction .... Tex. Bus. & Com . Code § 24.0 0 5(a). Sim ilarly, under Section 548(a)(1) of the Bankruptcy Code, a bankruptcy trustee m ay avoid a transfer that was m ade within two years before the date the bankruptcy petition was filed if the debtor “received less than a reasonably equivalent value in exchange for such transfer or obligation” and either: was insolvent on the date that such transfer was m ade or such obligation was incurred, or became insolvent as a result of such transfer or obligation; was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property rem aining with the debtor was an unreasonably sm all capital; intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts m atured; or m ade such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of 27 See R. Doc. 82 at 11. 9 an insider, under an em ploym ent contract and not in the ordinary course of business. 11 U.S.C. § 548(a)(1)(B). Thus, to prevail on a constructive fraud claim under this provision, a plaintiff m ust plead and prove that: “(1) the debtor transferred an interest in property, (2) the transfer of that interest occurred within two years prior to the filing of the bankruptcy petition, (3) the debtor was insolvent on the date of the transfer or became insolvent as a result thereof, and (4) the debtor received less than reasonably equivalent value in exchange for such transfer.” In re Inspirations Im ports, Inc., No. 13-4331, 20 14 WL 1410 243, at *2 (N.D. Tex. Apr. 3, 20 14) (citing In re GW I PCS 1 Inc., 230 F.3d 788, 80 5 (5th Cir. 20 0 0 )). In dism issing the Trustee’s fraudulent transfer claims in the Second Am ended Com plaint, the Court faulted the Trustee for providing no factual m aterial to support the assertion that ATP did not receive reasonably equivalent value for its payments to defendants. The Third Am ended Com plaint does nothing to cure this deficiency. The Trustee’s factual allegations on this point rem ain essentially unchanged. The com plaint still lacks any allegation that defendants’ com pensation was out-of-line with peer firms, or that defendants did not honestly and diligently perform their jobs. Instead, the Trustee sim ply includes additional facts concerning defendants’ allegedly poor business 10 decisions. The upshot of these allegations is that defendants “rolled the dice on the future of the company by leveraging all of the com pany’s actual revenue producing properties.”28 The Trustee, however, concedes that defendants “believed this m ay have been a sound business practice,” even if the gam ble “did not pay off as the company lost hundreds and hundreds of m illions of dollars in 20 10 and 20 11.”29 The Trustee’s constructive fraudulent transfer allegations rem ain inadequate to survive a m otion to dism iss. Allegedly poor executive perform ance, without m ore, does not state a plausible claim for fraudulent transfer. See Scouler & Co., LLC v. Schw artz, No. 11-0 6377, 20 12 WL 150 2762, at *6 (N.D. Cal. Apr. 23, 20 12) (finding allegation that “Asyst failed to receive reasonably equivalent value in exchange for this ill-advised bonus, which cam e at a tim e when [Asyst’s form er CEO] had failed to preserve the Com pany’s financial position” insufficient to state constructive fraudulent transfer claim ); In re Hy drogen, L.L.C., 431 B.R. 337, 353 (Bankr. S.D.N.Y. 20 10 ) (dism issing constructive fraudulent transfer claim in light of “a com plete absence of facts supporting the allegation that the Debtor received 28 29 R. Doc. 72 at 9. Id. 11 less than reasonably equivalent value”). The Trustee’s com plaint m ust therefore be dism issed. 30 Further, as to ATP’s solvency or the alleged size of its assets at the tim e of the transfer, the com plaint rem ains conclusory, failing to point to any financial data showing that ATP was actually insolvent or had little capital when any of the alleged com pensation was paid. The Trustee’s allegation that “ATP’s debts rem ained greater than its assets at fair valuation”31 from May 20 10 forward is a m ere conclusion. In addition, ATP’s 20 11 10 -K, which the Trustee refers to in the com plaint, does not show that ATP’s debts were greater than its assets at fair valuation at the tim e of each alleged transfer or say what its total asset value was or whether it could pay its debts as they becam e due at the tim e of each of the alleged transfers. Finally, the Court finds that the Trustee’s claims m ust be dism issed with prejudice. Even in this Third Am ended Com plaint, the Trustee is still “not m aking progress toward an acceptable complaint,” and additional leave to am end is therefore unwarranted. Bank of Am ., N.A. v. Knight, 725 F.3d 30 Because it finds that the Trustee has still failed to satisfy the general pleading standards of Federal Rule of Civil Procedure 8(a), the Court again declines to resolve the parties’ dispute over whether constructive fraudulent transfer m ust com ply with the heightened pleading requirem ents of Rule 9(b). 31 R. Doc. 72 at 7. 12 815, 819 (7th Cir. 20 13). The Trustee’s vague, conclusory allegations are particularly striking given that, as the trustee of ATP’s estate, he has “ample access to [ATP’s] books and records.” Id. For these reasons, the Court finds that further leave to am end is not warranted in this case. See id. (“[I]n court, as in baseball, three strikes and you’re out.”); see also Jacquez v. Procunier, 80 1 F.2d 789, 792 (5th Cir. 1986) (“At some point a court m ust decide that a plaintiff has had fair opportunity to m ake his case; if, after that tim e, a cause of action has not been established, the court should finally dism iss the suit.”). IV. CON CLU SION For the foregoing reasons, defendants’ m otion to dism iss is GRANTED. The Trustee’s claim s are DISMISSED WITH PREJ UDICE. New Orleans, Louisiana, this _ 4th_ _ day of J anuary, 20 17. __ _____________________ SARAH S. VANCE UNITED STATES DISTRICT J UDGE 13