MEMORANDUM OF OPINION
Introduction
This decision represents another chapter in the adversary proceeding between debtors Tronox Incorporated and its affiliates
Anadarko has movеd for a ruling that § 550 of the Bankruptcy Code caps Tro-nox’s recovery on its fraudulent transfer claims at the amount of “unpaid creditor claims” in the case; Tronox has moved for a ruling that § 550 imposes no such cap.
Background
The factual background of this proceeding is set forth in the court’s prior decisions on the defendants’ motions to dismiss. See Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.),
This settlement agreement formed the “cornerstone” of Tronox’s proposed plan of reorganization. Confirmation Order, Case No. 09-10156, Dkt. No. 2567, at ¶ 37. This Court approved the settlement and confirmed Tronox’s plan on November 30, 2010. Id. at 86. The Plan created a litigation trust to pursue the claims in this adversary proceeding, and although the rights of Tronox are asserted, the environmental and tort creditors are the real parties in interest as plaintiffs, and several appeared through counsel at the hearing on these motions. Anadarko was an active party in interest throughout Tronox’s chapter 11 proceedings and although it did not object to the sеttlement or confirmation of the Plan, it obtained a provision in the Confirmation Order regarding its rights in this adversary proceeding. The Confirmation Order provides:
All parties reserve the right to make any available arguments, and assert any available claims and available defenses concerning the effect, if any, of the Plan Documents on the determination of liability or measure of damages (including, to the extent relevant, the value of the Tort Claims and the Environmental Claims) in the Anadarko Litigation, including under section 550 of the Bankruptcy Code.
Id. at ¶ 191.
Now, more than a year after confirmation, the adversary proceeding has proceeded through two motions to dismiss and the completion of discovery. With trial set to begin in May, the parties seek to narrow the issues through cross-motions for partial summary judgment on a limited issue relating to damages. Anadarko asserts that a clause in § 550(a) of the Bankruptcy Code, “for the benefit of the estate,” caps Tronox’s recovery at the amount of unpaid creditor claims and requires an accounting at trial of the amounts that the tort and environmental creditors are owed—or were owed on the Petition Date. Tronox, on the other hand, asserts that the plain language of § 550 and relevant case law impose no such ceiling on its potential recovery.
The amounts at stake are possibly enormous but at this point wholly uncertain. Anadarko asserts that Tronox’s attempted recovery is $15.5 billion—a number that Tronox does not reject—but this amount seems to be based on the gross value of the assets transferred out in 2005 increased to at least the Petition Date and possibly to the present. See Anadarko Opposition at 2; Transcript of Hearing held on 11/29/2011, Case No. 09-01198, Dkt. No. 292, at 26 In. 19—27 In. 3. Ana-darko claims that Tronox seeks a “windfall” of $14 billion by using excerpts from the reports of Tronox’s expert witnesses at trial (if called and qualified) to assert that Tronox’s own experts “concede” that environmental and tort claims as of 2005 were worth no more than $2 billion, a number to be reduced by the roughly $.5 billion already distributed on these claims. Ana-darko Opposition at 2.
Discussion
Tronox is correct that the “for the benefit of the estate” clause in § 550(a) will not limit its recovery on its fraudulent transfer claims at trial. Once an avoidance action creates some benefit for creditors—as this action already has—§ 550(a) is satisfied and any limits to recovery must be found
A. Legal Standard
Under Rule 56 of the Federal Rules of Civil Procedure (made applicable by Bankruptcy Rule 7056), a party may move for summary judgment “upon all or any part ” of a claim at issue. Fed.R.Civ.P. 56(a), 56(b) (emphasis supplied). A motion for partial summary judgment seeks a pretrial adjudication that certain issues shall be deemed established for the trial of the case. Alberty-Velez v. Corporacion de Puerto Rico,
In the case at bar, it is fair to conclude on this record that § 550(а) of the Bankruptcy Code does not impose Anadarko’s asserted cap on Tronox’s damages. It is equally clear, however, that the appropriate measure of damages in this case can only be determined after trial, leading to the denial of Tronox’s motion for summary judgment to the extent it seeks a holding that there is no limitation on damages other than the value of the fraudulently conveyed property.
B. Section 550
Fraudulent transfer law generally allows creditors to set aside or “avoid” transactions which improperly deplete a debtor’s assets. Togut v. RBC Dain Correspondent Servs. (In re &.W. Bach & Co.),
Once a transfer has been avoided, Bankruptcy Code § 550 provides that the trustee/debtor-in-possession
may recover for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property ...
11 U.S.C. § 550(a). Other parts of section 550 set forth the liability of an initial transferee and a subsequent transferee, defenses of certain transferees, and rights accorded to “good faith transferees,” such as a lien on any increase in value of the fraudulently conveyed property as a result of an “improvement” made after the transfer. The Bankruptcy Code thus separately provides for the avoidance or nubification of a fraudulent conveyance, and the babibty of a transferee. Seе IBT Intern., Inc. v. Northern (In re Int’l Admin. Servs., Inc.),
Anadarko’s motion for summary judgment is largely premised on one clause in § 550(a) providing that the trustee or debtor-in-possession “may recover for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property ...” 11 U.S.C. § 550(a) (emphasis supplied).
As an initial matter, Anadarko can find no supрort for its position in the plain words of the statute. Section 541 of the Bankruptcy Code provides that the “estate” created at the commencement of the case is comprised of, among other things, “all legal or equitable interests of the debt- or in property as of the commencement of the case.” The concept of the estate is not limited to the interest of creditors or a subclass of creditors.
Faithful to the language of the statute, the courts have given a very broad construction to the phrase “benefit of the
Having put the prospect of preference recoveries to work for the benefit of all creditors (including the unsecured creditors) ex ante by effectively selling them to the secured creditors in exchange for forbearancе—and in the process facilitating a swift sale all around—the bankruptcy judge did not need to use them ex post a second time, for still another benefit to the estate; there was no further benefit to be had.
Mellon Bank,
When a plan distributes stock and the stock appreciates or depreciates in value, section 1129(b) does not compel the bankruptcy court to reassess whether the party receiving the stock has received too much or not enough value relative to the total value of the party’s claim and the distributions to the other parties. The court finds this analogy helpful.
Kipperman,
Once some benefit to the estate is established, the cases do not use the “benefit of the estate” clause in § 550(a) to impose a cap on recovery. Acequia,
Anadarko contends that several (but not all) of the cases cited above involved intentional fraudulent conveyances and are therefore of little precedential value. There is no indication in the decisions, however, that the holdings should be so limited and § 550 applies to all avoided fraudulent conveyances, not just to a subset. Moreover, the Complaint states claims for intentional as well as constructivе fraudulent conveyances. See Shapiro v. Wilgus,
The record in this case establishes that the prospect of recovery in this adversary proceeding has already benefited Tronox’s estate. The liquidation analysis attached to the Disclosure Statement estimated that in a liquidation unsecured creditors would receive no recovery at all. Exhibit E to Disclosure Statement, at 3. The willingness of the environmental and tort claimants to take a relatively small amount of cash and litigation claims that were (and are) uncertain benеfited the Tronox estate by providing the General Unsecured Creditors with a stock interest in a company freed of legacy liabilities. It may be questioned whether Tronox would have been able to confirm a plan absent the settlement. Anadarko has implicitly acknowledged that there was some benefit to the estate from the settlement, as demonstrated by the following passage from the transcript of the hearing on this motion:
THE COURT: My point is more limited. My point is simply that the unsecured creditors ... benefited from the fact that the tort and environmental creditors removed their unliquidated claims from the reorganized debtor and agreed to seek recovery еlsewhere?
[ANADARKO’S COUNSEL]: They benefited to the extent that the recovery was subject to the limitations of Section 550, I agree.... But, Your Honor, what they’re arguing is that this prospect of recovery was put to work for the benefit of the estate, so therefore, now the sky’s the limit.... I submit to you, that does not suffice for purposes of Section 550.13
Once this benefit was obtained, § 550’s “for the benefit of the estate” requirement was satisfied. Mellon Bank,
Anadarko argues that limitation of damages to thе claims of the creditor plaintiffs is required because Tronox is principally relying on Oklahoma fraudulent transfer law, incorporated for present purposes through § 544(b) of the Bankruptcy Code. Like many other state fraudulent transfer laws, the Oklahoma statute provides that the creditor in a fraudulent transfer action may not recover more than “the amount necessary to satisfy the creditor’s claim.”
In support of its position, Anadarko relies on cases holding that the avoidance powers of an estate representative cannot be used where creditors cannot possibly benefit from the proceeding. This is an established principle that was applied to efforts to avoid а lien as well as to pursue preference or fraudulent conveyance actions under the former Bankruptcy Act. See, e.g., Vintero Corp. v. Corporacion Venezolana De Fomento (In re Vintero Corp.),
We have not been able to find any case that has accepted Anadarko’s contention that in order for there to be any recovery in an avoidance proceeding, there must be a prior calculation of each creditor’s claim in the case and a limitation of avoidance liability to the deficiency in payment. Any such tie between avoidance recovery and plan distribution would impede a settlement of the type incorporated in Tronox’s plan by refusing to afford a creditor who has taken a litigation risk a prospect of a possible recovery beyond that creditor’s individual damages. It would encourage endless valuation litigation and effectively impose a requirement, not found in the statute, that a judgment in the avoidance action precede plan confirmation. As the Ninth Circuit noted in Acequia, this would undoubtedly require debtors to delay filing plans of reorganization until completing all potential litigation and would violate chapter ll’s policy of facilitating a fast and equitable reorganization. Id. at 808. In this case, it is unclear whether Tronox could have confirmed any plan of reorganization without a settlement with its tort and environmental creditors, leading to the conclusion, as stated above, that the possibility of recovery in this action already has benefited creditors by making Tronox’s plan possible.
The only case Anadarko has cited which arguably supports its position of a recovery cap under § 550(a) is a chapter 7 case decided on “extremely unusual facts.” In re Murphy,
Based on the foregoing, Anadarko’s motion for summary judgment must be denied. On the other hand, Tronox overstates its case when it implies that there is no cap on plaintiffs’ potential recovery other than the value of the property fraudulently transferred. Bankruptcy Code
Beyond the specific limitations in § 550, courts have recognized that the purpose of fraudulent conveyance law is remedial rather than punitive. In re Best Products Co.,
Even after damages are calculated, other provisions of the Bankruptcy Code may mitigate the liability of the defendant in an avoidance proceeding. Courts have held that even the transferee of an intentional fraudulent conveyance may have a § 502(h) claim for the value of consideration paid after disgorging the transferred property. See Max Sugarman Funeral Home, Inc. v. A.D.B. Investors,
Conclusion
For the foregoing reasons, Anadarko’s motion for partial summary judgment is denied and Tronox’s opposing motion is granted in part and denied in part. Either party may settle an appropriate order on five days’ notice.
Notes
. For convenience, Tronox Incorporated, Tro-nox Worldwide LLC, Tronox LLC, and the
.The remaining defendants are Kerr-McGee Corporation and certain affiliates that are subsidiaries of Anadarko Petroleum Corporation. They were the vehicles for the spin-off of assets formerly owned directly or indirectly by Tronox’s predecessors in interest. For convenience, these entities are hereinafter referred to as "Anadarko,” even though Anadar-ko Petroleum Corporation was dismissed as a defendant from this adversaiy proceeding.
. In this case, there is no dispute that the applicable state law is that of Oklahoma, 24 Okla. St. Ann. §§ 116 and 117.
. Although this аspect of procedural posture is not relevant to substance of the matter, Tronox is the movant and Anadarko the cross-movant on these cross-motions for partial summary judgment.
. The Complaint also states a claim for breach of fiduciary duty as a promoter. In prior decisions, the court dismissed Tronox's claims for aiding and abetting a fraudulent conveyance, aiding and abetting breach of fiduciary duty, unjust enrichment, civil conspiracy, equitable subordination, and disal-lowance of claims, although the latter two claims were held subject to renewal in the
. The Plan gave General Unsecured Creditors the opportunity to participate in а rights offering whereby a creditor could elect to pay a certain amount for the right to obtain a greater amount of stock. The disclosure statement estimated that General Unsecured Creditors who participated in the rights offering would obtain a recovery of 78-100% on their claims. Disclosure Statement at 10.
. Because this language reserves the rights of both parties to argue the § 550 issue, the court finds Tronox's argument that the plan conclusively determines the value of the environmental and tort claims at the value of their contingent right to recovery to be as mistaken as Anadarko’s argument that Tronox should now be judicially estopped from arguing the § 550 issuе. Cf. Kipperman v. Onex Corp.,
. Section 502(h) of the Code as applicable here provides that if a transferee of a fraudulent transfer has an unsecured claim against the estate after disgorging the transferred property or its value, the claim will be treated as a prepetition claim. See 11 U.S.C. § 502(h); In re Best Products Co.,
. The numbers are hugely variable. See Ana-darko Reply at 33-34: "Plaintiffs’ potential recovery is just as uncertain today as it was at the time of confirmation ... Even the highly inflated amounts set forth in the tort and environmental proofs of claim are at least $8.5 billion less than the amounts Plaintiffs now seek. And those claim amounts are clearly overstated.” (footnotes omitted).
. Section 544(b) authorizes the avoidance of “any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an [allowable] unsecured claim.” 11 U.S.C. § 544(b) (emphasis added).
. No issue has been raised as to the existence of one unsecured creditor who is duly possessed of such a claim.
. There is no dispute that any recovery in this case would be for the value of the physical assets transferred to the Anadarko defendants, rather than recovery of the assets themselves. See Transcript of Hearing on 11/29/2011, Case No. 09-01198, Dkt. No. 292, at 84 In. 22-85 In. 5.
. Transcript of Hearing on 11/29/2011, at 58 In. 18-59 In. 17.
. The Oklahoma fraudulent transfer statute provides, in relevant part, that "to the extent a transfer is voidable in an action by a creditor ..., the creditor may recover judgment for the value of the asset transferred ... or the amount necessary to satisfy the creditor's
. The Code's legislative history explicitly states that § 544(b) "follows Moore v. Bay." S.Rep. No. 95-989, at 85 (1978).