As it happens, DFSC in fact did move to seek relief from the stay in order to terminate, engage in reprocurement, and establish its damages for cover, albeit before EPR had made the decision whether to assume or reject. The specific termination clause in this Contract was conditioned upon a default, and termination was in turn a necessary prerequisite to establishing DFSC's damages.
We thus face a conundrum. How ought we to characterize DFSC's "claim," given that the Contract was neither assumed nor rejected? True enough, we might accord the claim priority status to the extent of actual benefit to the estate, but no benefit was present here. The triggering event for recovering damages was termination, but the triggering event for termination was a default. In this case, the first and only default occurred post-petition, and prior to any assumption or rejection by EPR of the executory contract.
At the time DFSC moved to lift the stay, EPR was still in a position to assume or reject the Contract, and the bankruptcy court was aware of this option. At the same time, the court was also conscious of the situation in which DFSC found itself, being forced by interests of national security to provide "cover," and unable by the terms of that very Contract to recoup those cover costs unless it obtained contract termination.
The options available were thus as follows: 1 the Trustee could move to assume or reject the Contract immediately; 2 the court could require DFSC to file a motion to compel the Trustee to assume or to reject; 3 the court could sua sponte set a deadline for the estate to either assume or reject the Contract; or 4 the court could simply lift the stay and allow DFSC to proceed with termination under its Contract, deferring until a later date the question regarding what, if any, damages claim DFSC might hold as a result.
One way to characterize the court's decision lifting the stay is that the court in effect set a deadline for the estate to either assume or reject the Contract. After all, lifting the stay certainly did not prevent the estate from subsequently filing a motion either to assume or to reject the Contract. If the estate failed to move quickly, the nonbankruptcy termination process would quickly foreclose the estate's options.
The court would certainly have been aware that termination was DFSC's only means for setting a claim for its cover damages, as the Contract was attached to the motion for relief. The court would have been equally aware that the termination process was somewhat lengthy, affording the estate some time to accomplish assumption or rejection before the termination was accomplished in the non-bankruptcy forum.
Perhaps the court intended to put DFSC to an election of remedies, but the more likely scenario is that the court intended to place a deadline on the estate to either assume the Contract, or to have it deemed rejected. By validating DFSC's maneuvers here, we risk creating a mechanism by which a party could bargain at the contract negotiation stage for a clause that provides for termination plus damages upon default without mentioning insolvency. Such a clause might afford a stronger "cause" element for relief from stay termination is required in order to "set" the rejection claim.
The argument also puts the cart before the horse, however. After all, a party can as easily move for relief from stay to terminate after rejection of the contract.
The "cause" argument at the lift stay stage is no stronger, because, again, the response will always be or should be , a deadline for assumption or rejection of the contract. Moreover, even if a motion to lift stay may be an awkward way for the non-debtor to commence enforcement of the debtor's contract, decision on the motion is still soundly within the court's province. By focusing on two of the basic principles of a functional approach to executory contracts, first that the contracts are property of the estate and second that the litmus test for resolving questions as to such contracts is the extent to which their breach or performance would benefit or burden the estate, the court will be able to gauge whether lifting the stay is appropriate at a given juncture in the proceeding.
Our decision here is also complicated by the procedural disposition of this matter. By the same token, there is nothing particularly scandalous about DFSC's pursuing a remedy under the terms of the Contract. To so deny DFSC would elevate form over substance in a manner that ignores the uncomfortable positions of both parties at the time the stay was lifted and ignores the express terms of the underlying contract. Therefore, for the purposes of this case, we hold that, by terminating the stay, the court set a de facto deadline for assumption or rejection of the Contract, affording the estate a short period of time i.
The general purpose of damages for breach of contract is to put the plaintiff in the economic position he or she would have been in had the contract been properly performed.
Krafsur v. A party seeking damages for breach of contract must prove with reasonable certainty the damages allegedly occurring. El Paso Natural Gas Co. Conveying Techniques, Inc. But reasonable certainty does not mean mathematical exactitude. When EPR was unable to perform on the Contract, DFSC was required to terminate the Contract and reprocure from other sellers the fuel needed by various military installations.
At the hearing, we learned from Norma McGuire, a contracting officer with the DFSC, that because reprocurement is done on a shorter time-line than the normal fuel procurement bidding and contracting process, the price per gallon of the reprocured fuel was in many instances higher than the prices provided in the EPR Contract. Apparently, Cannon needed less fuel than anticipated at that time, while the Roswell facility faced a shortfall as a result of EPR's inability to perform.
So DFSC modified the contract with Navajo to divert up to 2,, gallons of fuel to Roswell, instead, leading to the additional costs. We take these additional costs to be supported by the evidence and to be adequately justified by the DFSC. While the argument may be made that Navajo was already obligated under the original contract to provide this fuel, we conclude that the additional cost was justified by the contract modification and diversion of fuel from one point of delivery to another.
McGuire explained that the reason the DFSC contracted for this amount with Chevron was that, at the time the emergency reprocurement was made, Luke had a projected need of 33,, gallons, while Navajo had only 16,, available and Giant only 6,, available to commit to sell. The Trustee counters that the DFSC had already contracted with Navajo for 61,, gallons for its requirements that year, but left approximately 10,, gallons under that contract unused, and asks why DFSC did not simply draw down Luke's additional needs under the existing Navajo arrangement.
McGuire explained that the volumes initially solicited in the contracts i. Finally, given the vicissitudes of fuel procurement on such a large scale, especially in the short-term, emergency procurement context in which the DFSC found itself, it is not surprising that the DFSC purchases that, in retrospect, look sub-optimal.
In light of this, we conclude that the disputed reprocurement from Chevron was reasonable and is adequately supported by the evidence. The Trustee is correct in pointing out that the actual receiving report for the July 18, shipment and the invoice for the August 25, shipment are missing. And since we are dealing here with a government procurement agency, we think that it is appropriate to hold them to such a standard. The court's own evaluation of the contract in question satisfies the court that, regardless the imprecision of the contours of what makes a contract executory, this particular contract falls well within the boundaries.
These installations will apprise DFSC of their needs for the next month or so, and DFSC will solicit bids from various approved suppliers, selecting winning bids by evaluating such things as price, capability of delivery, cost of transportation, and the like. Within the first week of the proceeding, Judge Monroe denied EPR use of cash collateral from its prepetition working capital lenders, drastically reducing EPR's cash flow and requiring the debtor to cease operating its oil refinery in El Paso.
However, an oil refinery cannot simply be switched off. Because volatile materials remain in the refinery's system, a total shut-down could cause the refinery literally to explode, causing considerable mayhem. The proper procedure, referred to as a "warm shut-down," involves gradually reducing the plant's operations to a level at which it can safely lay idle.
The events here transpired while this was a Chapter 11 case. By the time the case was converted to Chapter 7, the contract had long since been terminated.
The law already and readily recognizes that a contract which falls into the first category is not a contract susceptible of either assumption or rejection in the first instance. See Hertzberg v. Loyal American Life Ins. We are interested only in the second category of terminations, because the act of termination will, if exercised, cut off the estate's ability to either assume or reject the executory contract, effectively robbing the estate of an important choice conferred by the Bankruptcy Code on the estate's agent the trustee for the benefit of the estate's creditor body.
Finally, Texaco argues that the existence of another lawsuit involving the same issues weighs against the appropriateness of declaratory relief. See Mission Ins. Puritan Fashions Corp. Although the parties acknowledge a pending toxic tort action in Texas state court against RHC, we find this argument unpersuasive. This declaratory action seeks only to interpret the contractual provisions governing the allocation of liability among the parties. Thus, a state tort suit addressing causation and culpability will not resolve the same issues.
See Harris v. Perkins , S. In Palestine , the plaintiff reached a settlement agreement with one of two joint tortfeasors after the plaintiff was injured in an automobile accident.
The court reasoned that if the plaintiff was subsequently permitted to seek full recovery from the non-settling tortfeasor, then the non-settling defendant would have a right of contribution against the settling defendant, who would in turn would have a viable claim against the plaintiff based on the language of the settlement agreement. Thus, the court held that the plaintiff's recovery against the non-settling defendant was limited by the amount received from the settling defendant.
The holding in Palestine has been superseded by Texas's adoption of the comparative fault doctrine. See Duncan v. Cessna Aircraft Co. Thus, although TRMI can submit the full amount of its claim to the Trustee, its total recovery is limited. Texaco, in turn, is entitled to indemnification from TRMI. We note that the district court based its conclusion, in part, on Texas' express negligence rule See Ethyl Corp.
Daniel Constr. Because we base our conclusion on alternate grounds, namely the relevant caselaw interpreting the circuity of action doctrine, we do not address the express negligence rule in this opinion. We note that in other circuity of action cases, the settling defendant also agreed to waive any future claims against the plaintiff See Starcraft Co. Heck Co. Accordingly, in consideration of the mutual covenants set forth herein, the parties hereby mutually release, discharge and acquit one another of any and all claims, demands and causes of action, whether or not asserted in the above-referenced litigation, and whether known or unknown.
Here, the Estate does not waive any claims against RHC, a fact which indicates that this is purely a covenant not to sue, rather than an indemnity provision. Although it appears that the Debtor was obligated to indemnify TRMI through provisions in the Purchase Agreement dating from the sale of the Refinery, it was not until the parties executed the Settlement Agreement that TRMI was guaranteed a claim against the bankruptcy estate to cover the costs of any contribution claim by RHC.
This conflict in interpretation alone is not enough to show that the Term Sheet is ambiguous See Forbau , S. After applying the relevant rules of contract construction to the agreement, we do not believe that it is subject to more than one reasonable interpretation. Trinity Indus. Ashland, Inc. The Appellants have raised an additional argument, which is that this interpretation impermissibly adds the term "operations" into the provision.
While courts are clearly prohibited from introducing new provisions into a contract, we believe that in this instance, the word "operations" is implicit and its inclusion merely clarifies the meaning of the sentence Cf. American Enka Corp.
Sentence two of this paragraph provides: "The Acquiring Entity [RHC] shall take the refinery assets subject to all written existing remedial orders. The Appellants also argue that we cannot read this sentence to allocate only post-foreclosure liability to RHC, because such an interpretation would create a redundancy with state law. This argument lacks merit, as contractual provisions confirming the parties' rights under state law are permissible, and should be given their intended effect See Dub Shaw Ford, Inc.
Jackson , S. The proposed first draft stated: "The Term Lenders will indemnify estate for all environmental liabilities. Instead, we offered that the Term Lenders would accept responsibility for environmental risks due to operations from and after the foreclosure date. The examiner agreed to this concept. Moreover, we note that extrinsic evidence of the parties' intent reinforces our conclusion. The bankruptcy examiner, who was involved in the negotiations between the parties, testified at the hearing seeking approval of the Term Sheet that it was his understanding that only "the current known EPA problems [would] be assumed by the term lenders," and that the Term Lenders were not indemnifying the Estate for any environmental claims that might be asserted against it.
In fact, he agreed that it was "perfectly clear" that the Term Lenders were not indemnifying the Estate for any unknown environmental conditions in the Term Sheet. The Purchase Agreement executed by the parties also contains environmental covenants. The agreement identifies and discloses specific environmental conditions which existed at the Refinery at the time of the TRMI-Old Inc. In a separate provision, the buyer agrees to indemnify TRMI with respect to any environmental liability on the property.
Second, it is not clear that the contracting parties intended the other covenants in the Purchase Agreement to bind subsequent owners of the Refinery. In any event, however, because the requirements for a covenant to bind a non-party to the original contract are the same with respect to both the agreement and the deed, we limit our discussion in this opinion to the TRMI Deed. Texas caselaw therefore utilizes the term "personal covenant" in two contexts — first, as a purely personal covenant not enforceable at law or in equity; and second, as an equitable servitude.
For maximum clarity, we will use the term "equitable servitude" to describe an enforceable restriction which is not a real covenant, and the term "personal covenant," to refer to a totally unenforceable restriction.
In rejecting the Appellants' argument that the TRMI deed contains a real binding covenant, both the bankruptcy and the district courts appear to have concluded that a showing of both burden and benefit is required. Regardless of what test is employed, however, the covenant is unenforceable. Because Texas has not yet adopted this approach, we do not address in this opinion the numerous policy arguments advanced by both parties.
Further, the obligation in Westland Oil was a positive one; once drilling commenced, the obligation to pay was automatic. Here, however, when and if remediation efforts occur, a negative obligation precludes the owner from seeking contribution.
Such a negative obligation represents a more tenuous connection to the property. Trmi Holdings, Trmi Holdings, Inc. Krafsur, Trustee, Appellants. Refinery Holding Co. Krafsur, Trustee, Appellant, v. Justia Legal Resources. Find a Lawyer. The refinery was originally two facilities with the north portion built by Chevron in , and the south portion built by Texaco in The operations of both sites were modernized over the years, and the two plants were combined in The El Paso refinery has a crude oil refining capacity of approximately , barrels per calendar day bpcd.
The refinery processes sweet and sour crudes into gasoline, distillates, heavy fuel oil, asphalt and propane and has access to the Permian Basin shale region. See Mobil Oil Corp. Brennan, F. Nor does it permit TRMI, the promisee, to enter or utilize the land for any purpose.
See, e. Wimberly, S. Rather, it is a continuing and non-contingent contractual agreement under which the Debtor agrees to refrain from seeking environmental remediation or damages from TRMI. A personal contractual arrangement does not qualify as a covenant. See Martindale v. The deed's restrictive language does little more than shield TRMI from the possibility of a contribution suit by a future owner. In this respect, the covenant operates as a cost-shifting mechanism, by pushing all costs of remedial action forward onto the Debtor and any subsequent purchaser.
We believe such a provision is more analogous to an obligation to assume an encumbrance, in this case the encumbrance being the responsibility to pay for all environmental clean-up costs. Under Texas law, a covenant to pay an encumbrance does not run with the land. Talley v. Howsley, S. Cunningham v. Buel, S. The Appellants rely heavily on the Texas Supreme Court's decision in Westland Oil to argue that a covenant affecting the value of the land is enough.
We disagree. First, the court's decision in Westland Oil is distinguishable because the party's obligations under the covenant were triggered by an action affecting the land itself. In that case, the covenant obligating the third-party to assign part of its interest in the oil and gas leases was predicated on the drilling of a test well on the land.
See 16 TEX. They argue that this type of contractual restriction is binding when a party purchases land with notice of a restriction, regardless of whether it is a real covenant running with the land. The Appellants' argument lacks merit.
An equitable servitude is enforceable when the contracting parties are in privity of estate at the time of the conveyance, and the subsequent party purchases the land with notice of the restriction. Tarrant Appraisal Dist. Colonial Country Club, S.
However, the restriction sought to be enforced must still "concern the land or its use or enjoyment" in the case of an equitable servitude.
Montgomery v. Creager, 22 S. Therefore, because we have already concluded that the covenant in the TRMI Deed does not "concern the land or its use," it is likewise not enforceable as an equitable servitude. Tarrant, S. In sum, we hold that the covenant in the TRMI Deed is a personal covenant that is not binding upon RHC, either as a real covenant or as an equitable servitude.
In conclusion, we find the Appellants' attempts to shift all responsibility for the environmental contamination at the Refinery to RHC to be unpersuasive, based on our interpretation of the relevant documents.
The Term Lenders' involvement with the Refinery dates back to the Debtor's original purchase of the Refinery, which was financed in part by the C. Corporation "CIT". The order identifies the known environmental conditions at the Refinery, and has subsequently been amended but remains in effect. Texaco makes several additional arguments relating to whether the bankruptcy court should have dismissed RHC's claims against Texaco. First, Texaco argues that the bankruptcy court should have dismissed its claims based on the lack of a justiciable controversy.
However, in light of the fact that RHC has already notified Texaco that it intends to pursue contribution, as well as the fact that RHC has already incurred remediation expenses at the Refinery, we find this argument to be completely meritless See Associated Indem. Fairchild Indus. Second, Texaco argues that the bankruptcy court abused its discretion in not dismissing RHC's declaratory action, because this case will not resolve the entire controversy between the parties.
Because we believe that clarification of the rights of the parties with regard to the Term Sheet is a distinct and separate issue justifying a declaratory action, we also reject this argument. Finally, Texaco argues that the existence of another lawsuit involving the same issues weighs against the appropriateness of declaratory relief.
See Mission Ins. Puritan Fashions Corp. Although the parties acknowledge a pending toxic tort action in Texas state court against RHC, we find this argument unpersuasive. This declaratory action seeks only to interpret the contractual provisions governing the allocation of liability among the parties. Thus, a state tort suit addressing causation and culpability will not resolve the same issues.
See Harris v. Perkins, S. In Palestine, the plaintiff reached a settlement agreement with one of two joint tortfeasors after the plaintiff was injured in an automobile accident. The court reasoned that if the plaintiff was subsequently permitted to seek full recovery from the non-settling tortfeasor, then the non-settling defendant would have a right of contribution against the settling defendant, who would in turn would have a viable claim against the plaintiff based on the language of the settlement agreement.
Thus, the court held that the plaintiff's recovery against the non-settling defendant was limited by the amount received from the settling defendant. The holding in Palestine has been superseded by Texas's adoption of the comparative fault doctrine. See Duncan v. Cessna Aircraft Co. Thus, although TRMI can submit the full amount of its claim to the Trustee, its total recovery is limited. Texaco, in turn, is entitled to indemnification from TRMI.
We note that the district court based its conclusion, in part, on Texas' express negligence rule See Ethyl Corp. Daniel Constr.
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