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In re Castex Energy Partners LP

United States District Court, S.D. Texas, Houston Division

June 21, 2018

CASTEX ENERGY OFFSHORE, INC., et al., Appellees. APACHE CORPORATION, Appellant, Adversary No. 17-3454



         This case involves an appeal from the Memorandum Opinion (“Mem. Op.”) [Doc. # 37 in Adv. No. 17-3454], and the Remand Order [Doc. # 39 in Adv. No. 17-3454] entered February 1, 2018, by United States Bankruptcy Judge Marvin Isgur. Appellant Apache Corporation (“Apache”) filed its Brief for Appellant [Doc. # 5], Appellees Castex Energy Offshore, Inc., Castex Energy, Inc., Castex Energy Partners, LP, Castex Energy 2008, L.P., and Castex Energy Development Fund, LP (collectively, “Castex”) filed their Opening Brief of Appellees [ Doc. # 7 ], and Apache filed its Reply Brief for Appellant [Doc. # 9]. The Court has conducted de novo review of the full record and applicable legal authorities. Based on that review, and the reasons stated in the Bankruptcy Court's Memorandum Opinion, the Court affirms the Memorandum Opinion and Remand Order.

         I. BACKGROUND

         The factual background of this dispute is set forth fully in the Bankruptcy Court's Memorandum Opinion. Briefly, in 2011, Castex and Apache entered into a joint venture to purchase oil and gas producing properties and infrastructure. They entered into several Joint Operating Agreements (“JOAs”) that dictated which party would operate a given well and which party would be billed under a Joint Interest Billing Statement (“JIB”) for its share of the operating expenses.

         Disputes between the parties arose in connection with the JOAs and JIBs for the Belle Isle Facility and the Potomac # 3 Well. In August 2015, Apache filed a lawsuit in Texas state court alleging that Castex failed to pay JIBs totalling $18, 000, 000.00 in connection with thirteen JOAs. Castex filed a Counterclaim, and later filed a First Amended Counterclaim [Doc. # 3-14 in Adv. No. 17-3454]. In the First Amended Counterclaim, Castex asserted causes of action for breach of contract, “Money Had and Received, ” fraud, fraudulent inducement, negligent misrepresentation, negligence, gross negligence, offset, and for a declaratory judgment.

         In October 2017, Castex Energy Partners, L.P. and Castex Offshore Inc. (“the Castex Debtors”) filed Chapter 11 petitions in bankruptcy. In December 2017, Apache filed two proofs of claim in the Castex Debtors' bankruptcy proceeding. Apache's two proofs of claim are based on the same theory as its state court lawsuit, i.e., that Castex Debtors owe Apache $18, 000, 000.00 in unpaid JIBs due under the thirteen JOAs.

         Also in December 2017, Apache removed its state court lawsuit to federal court, where it was docketed as Bankruptcy Adversary No. 17-3454. Castex filed a motion to abstain and to remand the adversary proceeding to state court, arguing that both mandatory abstention and permissive abstention apply. The Bankruptcy Court determined that mandatory abstention was appropriate and, therefore, granted the motion to remand. See Mem. Op. at 12. This appeal followed.


         The Court has jurisdiction pursuant to 28 U.S.C. § 158(a) to consider the appeal. See In re SBMC Healthcare, LLC, 547 B.R. 661, 673 (S.D. Tex. 2016) (Lake, J.). The Court reviews a bankruptcy judge's conclusions of law de novo and findings of fact under the “clearly erroneous” standard. See In re Thaw, 769 F.3d 566, 368 (5th Cir. 2014); Matter of Chu, 679 Fed.Appx. 316, 318 (5th Cir. Feb. 9, 2017). Mixed questions of law and fact are reviewed de novo. See Matter of Cowin, 864 F.3d 344, 349 (5th Cir. 2017); In re Positive Health Mgmt., 769 F.3d 899, 903 (5th Cir. 2014).

         III. ANALYSIS

         Apache challenges the Bankruptcy Court's decision that mandatory abstention in the Adversary Proceeding was appropriate. Mandatory abstention requires a court to abstain and remand a removed case where:

Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.

28 U.S.C. § 1334(c)(2). Mandatory abstention is appropriate where “(1) [t]he claim has no independent basis for federal jurisdiction, other than § 1334(b); (2) the claim is a non-core proceeding . . .; (3) an action has been commenced in state court; and (4) the action could be adjudicated timely in state court.” In re Moore, 739 F.3d 724, 728-29 (5th Cir. 2014) (quoting In re TXNB Internal Case, 483 F.3d 292, 300 (5th Cir. 2007)).

         In this case, the Bankruptcy Court held that all four requirements for mandatory abstention had been satisfied. While the issue was pending before the Bankruptcy Court, Apache argued that the counterclaim was a core proceeding and challenged the ability of the state court to adjudicate the dispute in a timely manner. ...

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