Firm News

Investment group that acquired oil and gas drilling business in bankruptcy wins on appeal in Fifth Circuit

On June 16, 2011, the U.S. Court of Appeals for the Fifth Circuit ruled in favor of a group led by Jones Day client Evercore Capital Partners II, LLC in affirming an order that denied leave to assert damage claims against Evercore and its co-investors in connection with their acquisition of an oil and gas drilling business in bankruptcy.

Evercore led an investment group that acquired the debtor Davis Petroleum Corporation and certain of its affiliates in March 2006 pursuant to a confirmed plan of reorganization in a pre-packaged bankruptcy filed in the U.S. Bankruptcy Court for the Southern District of Texas. The Nancy Sue Davis Trust is a former interest holder in the debtors that neither voted for nor objected to the plan, but the Trust brought a post-bankruptcy action against, inter alia, Jones Day client Davis Petroleum and its affiliates (the "Reorganized Debtors") to revoke the confirmation order pursuant to 11 U.S.C. § 1144, alleging that the confirmation order was procured by fraud due to purported misrepresentations concerning valuation of the debtors’ businesses. The Bankruptcy Court granted a motion for summary judgment by the Reorganized Debtors, and in a detailed opinion agreed with the defendants that the record clearly showed that there was no fraud in procuring the confirmation order. The District Court granted the defendants’ motion to dismiss the Nancy Sue Davis Trust’s subsequent appeal, on the ground that the plan was substantially consummated and that therefore the Trust’s post-confirmation challenge to it was equitably moot. The Trust did not appeal from that dismissal order, but instead made a motion in the District Court for leave to file a complaint in a new action asserting damage claims under state law against Evercore and its co-investors for alleged wrongful conduct culminating in the bankruptcy sale of Davis Petroleum. The District Court granted defendants’ request to refer the Trust’s motion for leave to the Bankruptcy Court. The Bankruptcy Court, in turn, denied the Trust’s motion and ruled that the release and exculpation provisions in the confirmation order and the plan of reorganization barred the Trust’s proposed claims and that the Trust's motion was an improper collateral attack on the plan.

The Trust appealed to the District Court, but the Fifth Circuit granted a petition by Evercore and its co-investors for a direct appeal to the Fifth Circuit. In its published decision affirming the Bankruptcy Court’s order, the Fifth Circuit agreed with appellees that the confirmation order and the plan of reorganization released Evercore and its co-investors from the Trust’s proposed claims because they accrued before the effective date of the plan; rejected the Trust’s arguments that its proposed claims were not covered by the release because they purportedly "arose under" the plan or the purchase and sale agreement; and agreed with appellees that an exculpation provision in the confirmation order barred the Trust’s claims against one of the appellees who was not covered by the pertinent release notwithstanding the Trust’s arguments that there was a purported inconsistency in the exculpation provisions of the confirmation order and the plan of reorganization. The appellate court’s ruling ends five years of contentious litigation seeking to challenge the acquisition of Davis Petroleum through this pre-packaged bankruptcy. Jones Day represented Evercore and the Reorganized Debtors in the bankruptcy proceedings and throughout this entire litigation. Along with its co-appellees, Evercore and the Reorganized Debtors won every stage of the litigation in the Bankrupty Court, the District Court, and in the Fifth Circuit.

Jones Day partners Jane Rue Wittstein and Todd R. Geremia (New York) represented Evercore on the appeal in the Fifth Circuit, and Todd presented oral argument on behalf of all appellees. Evercore was also represented throughout the bankruptcy proceedings and litigation by Jane Rue Wittstein and partner Jeffrey A. Schlegel (Houston), and by a team of lawyers from the New York office that included partners Richard H. Engman, Steven C. Bennett, and associates Ben Rosenblum and Justin F. Carroll.

Read the opinion: Evercore Capital Partners II, L.L.C. v. Nancy Sue Davis Trust, No. 09-41294 (5th Cir. June 16, 2011).