633 B.R. 124
D. Del.2021Background
- Debtors (Nine Point Energy and affiliates) operated oil & gas wells under long-term Midstream Services Agreements (MSAs) and a Revenue Commitment Agreement (RCA) with Caliber, which included Dedications/exclusivity and later easement language.
- Debtors filed chapter 11 (Mar. 15, 2021), promptly suing to declare prepetition terminations valid and to permit sale of assets free and clear of Caliber’s asserted contractual and lien rights.
- Bankruptcy Court granted summary judgment that the MSAs do not create covenants running with the land and that rejection would discharge the MSAs (SJ Orders); later reclassified Caliber’s asserted ~$150M RCA claim as unsecured (Claim Objection Order).
- Bankruptcy Court entered a Sale Order approving sale of substantially all assets free and clear, and a Rejection Order authorizing (but not directing) rejection of the Caliber contracts.
- Caliber appealed multiple orders; the District Court exercised jurisdiction under the merger rule to review the Sale Order and the related underlying orders and affirmed each ruling.
Issues
| Issue | Caliber’s Argument | Debtors/Agent’s Argument | Held |
|---|---|---|---|
| Effect of rejection: do Dedications survive rejection? | Dedications survive because rejection is a breach, not a rescission (relying on Mission Product). | Dedications are enforceable only through Caliber’s performance; rejection eliminates debtor’s future performance obligation so Dedications are inoperative. | Court: Affirmed bankruptcy court; Mission Product distinguishable—Caliber’s rights require debtor performance and thus do not survive rejection in usable form. |
| Do MSAs create covenants running with the land under North Dakota law? | MSAs expressly call Dedications "a covenant running with and burdening the land" and include easement language. | North Dakota law requires a covenant be contained in a grant of an estate in real property and directly benefit the land; easements are nonexclusive and not estates; Dedications benefit severed hydrocarbons (personal property), not the mineral estate. | Court: Affirmed—Dedications do not meet ND statutory elements (not a grant of an estate; do not directly benefit the land). |
| Does Caliber have a statutory well lien securing ~$150M RCA claim? | The ~$150M Minimum Revenue Commitment/claims secure Caliber’s pipeline construction costs and thus qualify as a Statutory Well Lien. | ND statute grants liens only for materials/services "used or employed" (past) in drilling/operating wells; RCA commitments are future revenue/ service payments, and Caliber retained title to pipelines (not furnished). | Court: Affirmed—Caliber has no Statutory Well Lien for unpaid future RCA revenues; lien statute covers past furnished materials/services only. |
| Was Caliber entitled to adequate protection under §363(e) for the $150M claim at sale? | Broad reading of "interest" requires adequate protection for a variety of interests beyond liens; trial court should have protected Caliber’s asserted rights. | Once court adjudicated Caliber had no cognizable property interest securing the $150M claim, Caliber was at best an unsecured creditor and not entitled to adequate protection. | Court: Affirmed—no adequate protection required for invalidated/disallowed interests; sale properly conditioned (and adequate protection provided) only for the recognized disputed secured claim (~$7.1M). |
Key Cases Cited
- Mission Product Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019) (Supreme Court: contract rejection operates as breach; certain counterparty rights independent of debtor performance can survive rejection)
- Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Securitization Tr., 730 F.3d 263 (3d Cir. 2013) (merger rule allows appellate review of prior nonfinal orders connected to a final order)
- Beeter v. Sawyer Disposal LLC, 771 N.W.2d 282 (N.D. 2009) (North Dakota: parties’ intent cannot convert a personal covenant into one that runs with the land)
- Sagebrush Res., LLC v. Peterson, 841 N.W.2d 705 (N.D. 2014) (North Dakota: easement is a nonpossessory, nonexclusive interest in land—not an estate)
- Slawson Expl. Co. v. Nine Point Energy, LLC, 966 F.3d 775 (8th Cir. 2020) (applying North Dakota law: payment covenants must show proceeds used exclusively for property benefit to run with land)
- In re SemCrude, L.P., 864 F.3d 280 (3d Cir. 2017) (treatment of liens/perfection and characterization of personal vs. real property in bankruptcy context)