HTML Document View

Full title: Third Motion to Extend Time File Avoidance Actions filed by David W. Parham for Debtor First River Energy, LLC (Attachments: # 1 Exhibit Service List # 2 Proposed Order)(Parham, David) (Related Document(s): 987 Second Motion to Extend Deadline to File Avoidance Actions Under Section 546(a) of the Bankruptcy Code filed by David W. Parham for Debtor First River Energy, LLC (Attachments: # 1 Appendix # 2 Proposed Order)(Parham, David) (Related Document(s): 816 Motion to Extend Deadline to File Avoidance Actions Under Section 546(a) of the Bankruptcy Code filed by David W. Parham for Debtor First River Energy, LLC))

Document posted on Jun 29, 2021 in the bankruptcy, 8 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

§ § DEBTOR’S THIRD MOTION TO EXTEND DEADLINE TO FILE AVOIDANCE ACTIONS UNDER SECTION 546(a) OF THE BANKRUPTCY CODE Pursuant to Section 105 of the Bankruptcy Code (i.e., 11 U.S.C. §§101 et seq.) and Rule 9006(b), Federal Rules of Bankruptcy Procedure, First River Energy, LLC, debtor and debtor-in-possession (the “Debtor”) in the above-captioned chapter 11 case, through its counsel, files this Third Motion to Extend the Deadline to File Avoidance Actions Under Section 546(a) of the Bankruptcy Code.Teal Natural Resources, LLC, Crimson Energy Partners IV, LLC, Viceroy Petroleum, LP, RLU Operating, LLC, Dewbre Petroleum Corporation, Jerry C. Dewbre, Trustee, American Shoreline, Inc., Texpata Pipeline Company, Aurora Resources Corporation, AWP Operating Co.;The Producers are: U.S. Energy Development Corporation; Ageron Energy, L.L.C.; Petroedge Energy IV, L.L.C.; Teal Natural Resources, L.L.C.; Crimson Energy Partners, IV L.L.C.; Viceroy Petroleum L.P.; RLU Operating L.L.C.; Dewbre Petroleum Corporation; Jerry C. Dewbre, Trustee; American Shoreline, Inc.; Texpata Pipeline 4.As a result of the pending appeal, it was uncertain whether the vast majority of parties who potentially received preference payments in December 2017 would ultimately be determined to be secured creditors, thus in order to avoid significant expense that might ultimately be determined to be of Company; Aurora Resources Corporation; AWP Operating Co.; Texron Operating L.L.C.; Galveston Bay Operating Co., L.L.C.; Magnum Producing LP; Magnum Engineering Company; Magnum Operating L.L.C.; Rock Resources Inc.; Killam Oil Co., Ltd.; Energy Reserves Group L.L.C.; RADCO Operations, LP; and RHEACO, Ltd. 5 USBC 18-05015The Defendants suggest that rather than a statute of limitations, § 546(a) operates as a jurisdictional bar, and point to Bankruptcy Rule 9006(b), which does not specifically provide for enlargement of time period created by statute, as opposed to those created by the Federal Rules of Bankruptcy Procedure or a court order.

List of Tables

Document Contents

IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION In re: § § Chapter 11 FIRST RIVER ENERGY, LLC,1 § § Bankruptcy Case No. 18-50085 Debtor. § § DEBTOR’S THIRD MOTION TO EXTEND DEADLINE TO FILE AVOIDANCE ACTIONS UNDER SECTION 546(a) OF THE BANKRUPTCY CODE Pursuant to Section 105 of the Bankruptcy Code (i.e., 11 U.S.C. §§101 et seq.) and Rule 9006(b), Federal Rules of Bankruptcy Procedure, First River Energy, LLC, debtor and debtor-in-possession (the “Debtor”) in the above-captioned chapter 11 case, through its counsel, files this Third Motion to Extend the Deadline to File Avoidance Actions Under Section 546(a) of the Bankruptcy Code. The Debtor seeks to extend for cause the Section 546(a) avoidance action deadline (the “Deadline”), which is currently September 1, 2021 to November 1, 2021. Concurrent with this motion the Debtor filed a Second Amended Disclosure Statement for the Debtor’s Plan of Liquidation Under Chapter 11 of the United States Bankruptcy Code (“Disclosure Statement”) and Debtor’s Second Amended Plan of Liquidation (“Plan”). The Debtor is also concurrently seeking relief for an expedited Disclosure Statement hearing and confirmation process with possibly a confirmation hearing occurring on August 18, 2021. The proposed Disclosure Statement and Plan provide for a compromise which if confirmed would result in the release of all Avoidance Actions. 1 The Debtor in this chapter 11 case, along with the last four digits of the Debtor’s federal tax identification number, is: First River Energy, LLC (9656). The mailing address for the Debtor, solely for purposes of notices and communications, is P.O. Box 1718, Livingston, TX 77351.

1

Further, cause exists because on February 3, 2021, the Fifth Circuit Court of Appeals issued its Opinion and Judgment, affirming this Court’s order on summary judgment in Adversary Pro. No. 18-05015-CAG (the “Lien Adversary”). The Fifth Circuit Court of Appeals Opinion has an all-encompassing impact on the next steps in this bankruptcy case. Since issuance of the Opinion, counsel for the Producers and the Debtor have been in settlement discussions on a proposed plan of liquidation and discussing whether a plan can also address avoidance actions. The compromise proposed by the Debtor in the Plan, if confirmed would, as stated above, result in the release by the Debtor of all avoidance actions. Historically, the Debtor received virtually all of its income on “Settlement Day” (defined below) from parties to whom it sold oil, and on the same day paid producers and royalty interest owners by ACH, wire transfer or check, depending on the recipient. Just prior to the December 2017 Settlement Day however, the Debtor’s lenders exercised control and dominion over the Debtor’s bank accounts. As a result, the Debtor was unable to make payments as it customarily had and virtually all payments made to producers and royalty interest owners in December of 2017 were made late, many by a means of payment different from prior, agreed payment methods. Thus, the Debtor believes these payments, which the Debtor calculates at approximately $20 million, were outside the ordinary course of business and thus not are protected by a Section 547(c)(2)(A) defense. The Debtor could move forward with filing a voluminous amount of avoidance actions now despite the proposed settlement and incur the attorneys’ fees preparing and prosecuting the adversaries and utilize a substantial amount of the Court’s judicial resources, and the avoidance action defendants likewise will be forced to incur significant litigation costs, only to be faced with a possibility of resolution via a consensual plan of liquidation.

2

BACKGROUND 1. On January 12, 2018, (the “Petition Date”), the Debtor filed a voluntary petition for relief under chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The Debtor continues its efforts in winding down the business and managing its assets as debtor in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. 2. On February 21, 2018, Deutsche Bank Trust Company Americas, as administrative agent2 (“Agent”) initiated an adversary proceeding3 against the Debtor, U.S. Energy Development Corporation, Ageron Energy, LLC, Petroedge Energy IV, LLC, Teal Natural Resources, LLC, Crimson Energy Partners IV, LLC, Viceroy Petroleum, LP, RLU Operating, LLC, Dewbre Petroleum Corporation, Jerry C. Dewbre, Trustee, American Shoreline, Inc., Texpata Pipeline Company, Aurora Resources Corporation, AWP Operating Co.; Texron Operating Co. LLC, Magnum Producing, LP, Magnum Engineering Company, Magnum Operating LLC, Rock Resources, Inc., Killam Oil Co., Ltd. and Energy Reserves Group, LLC, wherein Agent sought a declaration that their liens securing the Credit Agreement are senior in priority to the claims raised by the defendants and their lien(s) are valid, perfected, first priority liens in the collateral, including proceeds of the collateral. 3. On July 24, 2018, the Court ordered that RADCO Operations, LP and RHEACO, Ltd. were permitted to intervene in the Adversary Proceeding. The Interveners and the original defendants are collectively hereinafter referred to as “Producers.”4 2 Agent is the Administrative Agent under a Credit Agreement dated July 23, 2015 as amended, restated, supplemented, or otherwise modified from time to time (“Credit Agreement”) and related loan documents among the Debtor and certain of its affiliates and Deutsche Bank AG, New York Branch and the several banks and other financial institutions or entities from time to time parties thereto, as lenders. 3 Initiating adversary proceeding No. 18-05015-cag hereinafter the “Adversary Proceeding”. 4 The Producers are: U.S. Energy Development Corporation; Ageron Energy, L.L.C.; Petroedge Energy IV, L.L.C.; Teal Natural Resources, L.L.C.; Crimson Energy Partners, IV L.L.C.; Viceroy Petroleum L.P.; RLU Operating L.L.C.; Dewbre Petroleum Corporation; Jerry C. Dewbre, Trustee; American Shoreline, Inc.; Texpata Pipeline

3

4. On March 7, 2019, the Bankruptcy Court entered its Order Granting, In Part, And Denying, In Part, Agent’s Motion For Summary Judgment And Alternative Motion For Partial Summary Judgment (ECF No. 89) (“Summary Judgment Order”) [USBC 18-05015 Doc. No. 113], supported by a Memorandum Opinion Granting, In Part And Denying, In Part Agent’s Motion For Summary Judgment And Alternative Motion For Partial Summary Judgment (ECF No. 89)(“Memorandum Opinion”) [USBC 18-05015 Doc. No. 114] (collectively, the “Summary Judgment Rulings”). 5. The Producers timely filed a Motion for Leave to Appeal5 and a Notice of Appeal6 with respect to certain portions of the Summary Judgment Rulings pursuant to 28 U.S.C. § 158(a)(3). On April 22, 2019, while the Producers motion for leave to appeal was pending in the District Court, the Bankruptcy Court sua sponte certified appeal7 of the Summary Judgment Rulings for direct appeal to this Court pursuant to 28 U.S.C. § 158(d)(2). 6. The Fifth Circuit Court of Appeals issued an Opinion on February 3, 2021 affirming the Summary Judgment Rulings. Prior Extension of Time 7. Prior to oral argument being held and well over a year before the Fifth Circuit Court issued its Opinion, on October 29, 2019, the Debtor’s Filed a Motion to Extend Deadline to file Avoidance Actions Under Section 546(a) of the Bankruptcy Code. Doc. No. 816. As a result of the pending appeal, it was uncertain whether the vast majority of parties who potentially received preference payments in December 2017 would ultimately be determined to be secured creditors, thus in order to avoid significant expense that might ultimately be determined to be of Company; Aurora Resources Corporation; AWP Operating Co.; Texron Operating L.L.C.; Galveston Bay Operating Co., L.L.C.; Magnum Producing LP; Magnum Engineering Company; Magnum Operating L.L.C.; Rock Resources Inc.; Killam Oil Co., Ltd.; Energy Reserves Group L.L.C.; RADCO Operations, LP; and RHEACO, Ltd. 5 USBC 18-05015 Doc. No. 118. 6 USBC 18-05015 Doc. No. 119. 7 USBC 18-05015 Doc. No. 136; see also Opinion at USBC 18-05015 Doc. No. 135.

4

no value to the estate, the Debtor sought the extension. 8. On December 11, 2019, the Court granted an extension to file avoidance actions “for a period of ninety (90) days after all appeals and orders stemming from or related to the Adversary Proceeding No. 18-5015 are final and non-appealable, and the extent, validity and priority of the liens claimed by the Producers is conclusively established by a final, non-appealable order(s).” 9. On April 19, 2021, the Court entered an Order Granting Debtor’s Second Motion to Extend Deadline to File Avoidance Actions Under Section 546(a) of the Bankruptcy Code, granting an extension to file avoidance actions until September 1, 2021. 10. Since issuance of the Opinion, the parties have had ongoing settlement discussions on the best approach of proposing a plan of liquidation and a global resolution of all issues in the bankruptcy case, including avoidance actions. ARGUMENT The Court should extend the Deadline to November 1, 2021. This should allow the Debtor and its professionals sufficient time to file avoidance actions and to engage in customary pre-suit negotiations. Section 546 of the Bankruptcy Code provides in pertinent part: (a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of— (1) the later of— (A) 2 years after the entry of the order for relief; or (B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or

5

(2) the time the case is closed or dismissed. 11 U.S.C. 546(a). The Fifth Circuit in McFarland v. Leyh (In re Tex. Gen. Petroleum Corp.), 52 F.3d 1330, 1337–38 (5th Cir. 1995) stated that section 546 of the Bankruptcy Code operates as a statute of limitations. Section 546 is a true statute of limitations, subject to enlargement by court order, rather than a statute of repose or a jurisdictional bar. In re Int’l Admin. Servs., Inc., 408 F. 3d 689, 699 (11th Cir. 2005); In re Pugh, 202 B.R. 792 (M.D. Fla. 1996) (Bankruptcy Code provisions governing time limitations for commencing proceedings to avoid prepetition and postpetition transactions are waivable statutes of limitations, not jurisdictional bars). The Court has authority to enlarge the two-year limitations period under Section 546(a) of the Bankruptcy Code. See In re Int’l Admin. Servs., Inc., 408 F.3d at 699; In re: Fundamental Long Term Care, Inc., 501 B.R. 784, 787 (Bankr. M.D. Fla. 2013) (“There is no question the Court has the authority to enlarge the two-year limitations period under section 546(a).”). As the 11th Circuit Court of Appeals has explicitly stated, There is the threshold matter of whether the bankruptcy court had any authority—either by its own order or the doctrine of equitable tolling—to enlarge the § 546(a) period for commencing avoidance actions. The Defendants suggest that rather than a statute of limitations, § 546(a) operates as a jurisdictional bar, and point to Bankruptcy Rule 9006(b), which does not specifically provide for enlargement of time period created by statute, as opposed to those created by the Federal Rules of Bankruptcy Procedure or a court order. We find no merit in this argument. In re Int’l Admin. Servs., Inc., 408 F.3d at 699. There is sufficient cause for the Court to enlarge the statute of limitations period in this Case. The appropriate standard in this instance is the “for cause” analysis under Rule 9006, Federal Rules of Bankruptcy Procedure. See In re: Fundamental Long Term Care, Inc., 501 B.R. at 789. As the Court in Fundamental stated:

6

It seems to the Court that the appropriate standard would be the “for cause” analysis under Rule 9006. The Trustee here seeks an enlargement of time before the period has expired (equitable tolling presumably comes into play after the limitations period has expired). And that was the analysis the Eleventh Circuit initially applied in In re International Administrative Services, before turning to the equitable tolling analysis in an abundance of caution. So there does not appear to be any reason not to apply the “for cause” analysis. Id. In this Case, the parties have since February 2018 been engaged in litigation to determine the validity, extent and priority of liens. The Adversary Proceeding and the circumstances surrounding the appeal and the Adversary Proceeding as described above are extraordinary circumstances that warrant an extension of time. The amount of time that the Debtor seeks to extend the statute of limitations deadline is entirely reasonable. Additionally, given that a majority of the targets are parties to the Adversary Proceeding (though not all) an extension of time is reasonable to avoid the Debtor and counsel for the Producers incurring unnecessary attorneys’ fees in prosecuting and defending numerous preference actions that potentially may be resolved in a proposed consensual plan of liquidation. Accordingly, the Court should grant this Motion and extend the Deadline to September 1, 2021.8WHEREFORE, Debtor, First River Energy, LLC respectfully requests that this Court enter an order i. granting this Motion, ii. extending the time in which to file actions enumerated in 11 U.S.C. § 546(a) to November 1, 2021, and iii. granting such further relief as this Court deems just and proper. 8 Without prejudice to the Debtor or Debtor’s successor in interest seeking further relief.

7

Dated: June 30, 2021 Respectfully submitted, AKERMAN LLP /s/ David W. Parham David W. Parham, Texas Bar No. 15459500 Esther McKean, SBN: 24122145 2001 Ross Avenue, Suite 3600 Dallas, TX 75201 Telephone: (214) 720-4300 Facsimile: (214) 981-9339 david.parham@akerman.com esther.mckean@akerman.com COUNSEL FOR DEBTOR AND DEBTOR-IN-POSSESSION CERTIFICATE OF SERVICE I hereby certify that, on June 30, 2021, a true and correct copy of the foregoing document was served electronically by the Court’s PACER system to all parties receiving such notices. Furthermore, I directed Donlin Recano, the Debtor’s Noticing Agent, to serve the foregoing document(s) via first class mail on the parties named on the notice list attached hereto. /s/ David W. Parham David W. Parham

8