629 B.R. 233
Bankr. S.D. Tex.2021Background:
- PASE owned and operated a waste-heat facility in Port Arthur that used flue gas from Oxbow under a Heat Energy Agreement to produce steam (sold to Valero) and some electricity (sold to Oxbow).
- After relations deteriorated, Oxbow suspended flue-gas deliveries in 2018; PASE stopped producing steam and Valero terminated its contract. Arbitration and state-court review found no liability for Oxbow; PASE’s appeal remained pending.
- In March–April 2021 PASE filed suit against Oxbow (later removed) and then filed a Subchapter V chapter 11 petition and a plan proposing liquidation of assets and distribution of any recovery from the Oxbow litigation.
- On the petition date PASE was not selling steam or electricity but: it was managed under a management agreement, maintained the facility and vehicles, pursued litigation and collection efforts (including a ~ $163,000 receivable), sold at least one asset pre-petition, prepared assets for sale, and filed required tax and regulatory reports.
- The U.S. Trustee and Oxbow objected, arguing PASE was not a "person engaged in commercial or business activities" under 11 U.S.C. § 1182(1)(A); PASE argued its prepetition activities sufficed.
- The bankruptcy court applied the statute’s plain meaning, found PASE’s litigation, collection efforts, asset maintenance and sales preparations constituted commercial/business activities, and overruled the objections.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PASE qualified as a Subchapter V "person engaged in commercial or business activities" under 11 U.S.C. § 1182(1)(A) | PASE was not operating its core business on the petition date, lacked employees, and was effectively a defunct/shell entity — therefore not "engaged in" business activity | PASE actively pursued litigation and collections, maintained and repaired the facility, sold assets, prepared assets for sale, and had active management — these constitute commercial/business activities | Court held PASE met § 1182(1)(A): its prepetition litigation, collection, asset maintenance and sale-preparation activities were sufficient; objections overruled |
Key Cases Cited
- BedRoc Ltd., LLC v. United States, 541 U.S. 176 (2004) (statutory text should be given its ordinary meaning; no need to consult legislative history when text is unambiguous)
- Franco v. Mabe Trucking Co., 991 F.3d 616 (5th Cir. 2021) (affirming textualist approach to statutory interpretation)
- Conn. Nat'l Bank v. Germain, 503 U.S. 249 (1992) (courts presume the legislature means what it says in statutory text)
- Esquivel v. Lynch, 803 F.3d 699 (5th Cir. 2015) (same principle regarding reliance on plain statutory text)
- In re Thurmon, 625 B.R. 417 (Bankr. W.D. Mo. 2020) (distinguishable decision sustaining Subchapter V objection where debtors retained only an inactive shell and had no ongoing business activities)