551 B.R. 132
Bankr. S.D.N.Y.2016Background
- Debtors (including Sabine Oil & Gas) moved to reject certain gathering/handling agreements with Nordheim and HPIP; the bankruptcy court authorized rejection and issued nonbinding analysis on whether covenants "run with the land."
- Debtors then sued in adversary proceedings for declaratory relief; the court granted Debtors’ summary judgment, holding the covenants do not run with the land under Texas law.
- Nordheim and HPIP appealed the rejection and summary judgment orders; Nordheim sought (1) stays pending appeal of the Rejection Order and its Summary Judgment Order and (2) direct certification of those appeals to the Second Circuit under 28 U.S.C. §158(d)(2).
- Debtors opposed both the stay motions and the certification requests; a hearing was held and the court considered statutory criteria for direct certification and the four-factor stay test.
- The court denied Nordheim’s direct-certification requests (finding the issues were fact-specific or involved established bankruptcy business-judgment law and were not matters of public importance transcending the parties).
- The court denied the motions to stay pending appeal, finding no irreparable harm to Nordheim, substantial harm to the debtors/estate if stayed, insufficient likelihood of success on the rejection appeal, and that public interest favors prompt bankruptcy administration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether appeals should be directly certified to the Second Circuit under 28 U.S.C. §158(d)(2) | Nordheim: Questions are novel Texas law (whether dedication/transportation covenants create property interests) and are of public importance; direct certification would expedite resolution and permit certification to Texas Supreme Court | Debtors: Rejection decision rests on business-judgment standard (not novel law); summary-judgment rulings are fact-specific contract interpretations, not pure legal questions or matters transcending the parties | Denied: issues are either settled bankruptcy law (business judgment) or mixed law-and-fact; not shown to be matters of public importance warranting direct certification |
| Whether the Rejection Order should be stayed pending appeal | Nordheim: Rejection jeopardizes alleged real property rights and monetary damages may be inadequate due to Sabine’s insolvency; irreparable harm and public interest support stay | Debtors: Nordheim’s harm is monetary and quantifiable (liquidated damages); debtor would suffer substantial estate harm and reorganization delay; insolvency alone does not establish irreparable harm | Denied: Nordheim failed to show irreparable harm; debtors would suffer substantial harm; low likelihood of success on appeal of rejection order; public interest favors bankruptcy administration |
| Whether the Summary Judgment Order should be stayed pending appeal | Nordheim: Summary judgment ruling (that covenants do not run with the land) presents unsettled Texas-law issues and reversal is possible, so a stay is warranted | Debtors: Ruling is case-specific; stay would disrupt reorganization, cause substantial cost, and threatens plan confirmation and implementation (e.g., DCP contract) | Denied: Some possibility of reversal exists, but other stay factors (estate harm, public interest, irreparable harm) weigh against stay |
| Whether Nordheim has a substantial possibility of success on appeal | Nordheim: Contends unsettled Texas-law questions and factual disputes could lead to reversal | Debtors: Court applied business judgment for rejection; even if covenants run with the land, rejection authority can be limited while preserving property rights and monetary remedies exist | Denied as to Rejection Order (no substantial possibility); Summary Judgment Order has nontrivial chance, but not enough given other factors |
Key Cases Cited
- Orion Pictures Corp. v. Showtime Networks, 4 F.3d 1095 (2d Cir. 1993) (procedural limits on final adjudication of property-right issues in rejection motions)
- In re General Motors Corp., 409 B.R. 24 (Bankr. S.D.N.Y. 2009) (standards and balancing approach for stays pending appeal and direct-certification considerations)
- ACC Bondholder Group v. Adelphia Comm'ns Corp. (In re Adelphia Comm'ns Corp.), 361 B.R. 337 (S.D.N.Y. 2007) (four-factor stay test in bankruptcy context)
- Sabine Oil & Gas Corp. (In re Sabine), 548 B.R. 674 (Bankr. S.D.N.Y. 2016) (prior related ruling addressing stay factors and business-judgment analysis)
- Weber v. United States, 484 F.3d 154 (2d Cir. 2007) (direct-appeal appropriate only for questions of law not heavily dependent on case-specific facts)
- Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969 (2d Cir. 1989) (irreparable harm requires injury beyond mere money damages)
- Mohammed v. Reno, 309 F.3d 95 (2d Cir. 2002) (discussing standards for weighing stay factors and probability thresholds)