620 B.R. 256
Bankr. M.D. La.2020Background
- Falcon V and affiliates (oil & gas operators) filed Chapter 11 in May 2019; Argonaut had issued four prepetition performance bonds (Chevron, Hilcorp, Louisiana, U.S.) secured by indemnity agreements and held $3,213,720.55 cash collateral.
- Debtors obtained authority to continue the surety bond program during the case and confirmed a plan in Oct. 2019 that deemed executory contracts assumed unless rejected or listed for rejection. Argonaut filed proofs of claim but did not object to confirmation and did not appear until months later.
- Post-confirmation the reorganized debtors paid premiums on only two bonds; Argonaut then demanded either bond releases or additional collateral (about $7.3M), invoking indemnity-agreement language permitting collateral demands if the indemnitors’ financial condition deteriorates.
- Falcon V refused and argued the bond program is not an executory contract (and, if it were, is a nonassumable financial accommodation), that Argonaut’s unsecured indemnity claim was disallowed, and that Argonaut’s collateral demand violated the discharge injunction.
- The court found (1) the surety program is not an executory contract because Argonaut had already performed (posted the bonds) and owed no further performance to Falcon V; (2) even if executory, the arrangement is a nonassumable financial accommodation under §365(c)(2), and consent does not cure that bar; (3) Argonaut holds an allowed secured claim for the cash held but its unsecured contingent indemnity claim was disallowed under §502(e)(1)(B); and (4) Argonaut’s collateral demand violated the discharge injunction but was not contemptuous because its uncertainty about treatment was reasonable.
Issues
| Issue | Plaintiff's Argument (Argonaut) | Defendant's Argument (Falcon V) | Held |
|---|---|---|---|
| Whether the surety bond program is an executory contract | The indemnity agreement and bonds are executory and thus were deemed assumed by the confirmed plan | Not executory: Argonaut performed prepetition (posted bonds) and owed no further performance to the debtors | Not an executory contract |
| If executory, whether it could be assumed under 11 U.S.C. §365(c)(2) (financial accommodation) | Assumption should be permitted (Argonaut also suggested consent could allow it) | The bonds/indemnities are financial accommodations and thus nonassumable; consent is not an exception | Even if executory, it's a nonassumable financial accommodation; consent does not permit assumption |
| Plan treatment / effect on Argonaut's claims | Plan and disclosure practices meant the bond program would continue; Argonaut relied on plan-related statements | Argonaut had notice, filed claims, did not object to confirmation; secured claim reinstated, unsecured contingent indemnity claim disallowed under §502(e)(1)(B) | Argonaut is bound by the confirmed plan: secured claim allowed ($3,213,720.55); unsecured indemnity claim disallowed |
| Whether Argonaut’s post-confirmation demand for additional collateral violated the discharge injunction and whether contempt is warranted | Demand was reasonable given uncertainty about treatment and potential risk | Demand violated the discharge injunction; seek sanction/contempt | Demand violated the discharge injunction but refusal to hold Argonaut in contempt (objectively reasonable doubt existed) |
Key Cases Cited
- RPD Holdings, L.L.C. v. Tech Pharmacy Servs. (In re Provider Meds, L.L.C.), 907 F.3d 845 (5th Cir. 2018) (applies Countryman executory-contract test)
- In re Murexco Petroleum, Inc., 15 F.3d 60 (5th Cir. 1994) (adopts Countryman definition of executory contract)
- Taggert v. Lorenzen, 139 S. Ct. 1795 (2019) (standard for civil contempt for discharge violations)
- Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438 (2002) (statutory-interpretation principle: begin with text)
- Safer v. Nelson Financial Group, Inc., 422 F.3d 289 (5th Cir. 2005) (separate contemporaneous agreements construed together)
- In re Thomas B. Hamilton Co., Inc., 969 F.2d 1013 (11th Cir. 1992) (narrows "financial accommodations" under §365(c)(2) to traditional credit extensions)