Energy Future Holdings v. , 904 F.3d 298 ( 2018 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 18-1109
_____________
In re: ENERGY FUTURE HOLDINGS CORP., et al,
Debtors
NEXTERA ENERGY, INC.,
Appellant
______________
On Appeal from the United States Bankruptcy Court
for the District of Delaware
(Bankruptcy Case No. 14-10979)
Bankruptcy Judge: Honorable Christopher S. Sontchi
______________
Argued
April 19, 2018
______________
Before: GREENAWAY, JR., RENDELL, and FUENTES,
Circuit Judges.
(Opinion Filed: September 13, 2018)
Thomas M. Buchanan
Winston & Strawn
1700 K Street NW
Washington, D.C. 20006
Dan K. Webb
Winston & Strawn
35 West Wacker Drive, Suite 4200
Chicago, IL 60601
Howard Seife [Argued]
Andrew Rosenblatt
Eric Daucher
Norton Rose Fulbright
1301 Avenue of the Americas
New York, NY 10019
Jonathan S. Franklin
Norton Rose Fulbright
799 9th Street NW, Suite 1000
Washington, D.C. 20001
Matthew B. McGuire
Landis Rath & Cobb
919 Market Street
Suite 1800, P.O. Box 2087
Wilmington, DE 19899
Counsel for Appellant NextEra Energy, Inc.
Douglas H. Hallward-Driemeir [Argued]
Jonathan R. Ference-Burke
Ropes & Gray
2009 Pennsylvania Avenue NW, Suite 1200
Washington, D.C. 20006
2
Gregg M. Galardi
Keith H. Wofford
Ropes & Gray
1211 Avenue of the Americas
New York, NY 10036
Counsel for Appellees Elliott Associates, L.P.,
Elliott International, L.P., and Liverpool
Limited Partnership
Daniel J. DeFranceschi
Jason M. Madron
Richards Layton & Finger
920 North King Street
One Rodney Square
Wilmington, DE 19801
Mark E. McKane [Argued]
Kirkland & Ellis
555 California Street, Suite 2700
San Francisco, CA 94104
James H.M. Sprayregen
Marc Kieselstein
Andrew R. McGaan
Chad J. Husnick
Steven N. Serajeddini
Kirkland & Ellis
300 North LaSalle
Chicago, Illinois 60654
3
Michael A. Petrino
Kirkland & Ellis
655 15th Street NW
Washington, D.C. 20005
Edward O. Sassower
Stephen E. Hessler
Brian E. Schartz
Aparna Yenamandra
Kirkland & Ellis
601 Lexington Avenue
New York, NY 10022
Counsel for Appellee Energy Future Holdings
Corp.
______________
OPINION
______________
GREENAWAY, JR., Circuit Judge.
About a year after approving a merger agreement that
called for the payment of a $275 million termination fee under
certain conditions, the Bankruptcy Court in this Chapter 11
case admitted that it had made a mistake, granted a motion for
reconsideration, and narrowed the circumstances under which
the termination fee would be triggered. Were it not for the
order granting reconsideration, Appellant NextEra Energy, Inc.
would now be entitled to payment of the $275 million fee out
of the bankruptcy estates. In pursuit of the payment, NextEra
argues in this appeal that the Bankruptcy Court had it right the
4
first time and should have never granted the motion for
reconsideration. NextEra contends first that the motion was
untimely, before arguing alternatively that the motion should
have been denied on the merits because the termination fee
provision, as originally drafted, was an allowable
administrative expense under 11 U.S.C. § 503(b). We,
however, conclude that the Bankruptcy Court did not err in
either respect. The motion for reconsideration was timely, and
the Bankruptcy Court did not abuse its discretion in granting
it. We will therefore affirm.
I. BACKGROUND
A. The Approval of the Merger Agreement and
Termination Fee
Shortly after initiating Chapter 11 bankruptcy
proceedings, Debtors Energy Future Holdings Corp. (“EFH”)
and Energy Future Intermediate Holding Company LLC
(“EFIH”) began marketing their approximately eighty-percent
economic interest in the rate-regulated business of Oncor
Electric Delivery Co. LLC, the largest electricity transmission
and distribution system in Texas.1 On July 29, 2016, Debtors
entered into an Agreement and Plan of Merger with NextEra,
under which NextEra would acquire Debtors’ interest in
Oncor. The Merger Agreement, which reflected an
approximately $18.7 billion implied total enterprise value for
1
To be precise, Debtors in the underlying consolidated
Chapter 11 proceeding are EFH and fourteen of its
subsidiaries, including EFIH.
5
Oncor, stated that NextEra would provide approximately $9.5
billion in consideration to Debtors’ estates.
The Agreement also included a Termination Fee
provision, which obligated Debtors to pay NextEra $275
million if the agreement was terminated under certain
circumstances. As Debtors’ counsel later acknowledged
before the Bankruptcy Court, this provision was “incredibly
detailed.” App. 547. It began by providing that Debtors would
be required to pay the Termination Fee—sometimes referred
to as a break-up fee—
[i]f this Agreement is terminated . . . and any
alternative transaction is consummated
(including any transaction or proceeding that
permits the [Debtors] to emerge from the
Chapter 11 Cases) pursuant to which neither
[NextEra] nor any of its Affiliates will obtain
direct or indirect ownership of . . . approximately
80% equity interest in Oncor.
App. 182. In other words, payment would be triggered if
NextEra did not ultimately acquire Debtors’ interest in Oncor
and Debtors either sold Oncor to someone else or otherwise
emerged from the bankruptcy proceedings. But the provision
then proceeded to list a number of exceptions to this default
rule. It provided, for instance, that the Fee would not be
payable if the parties mutually consented to terminate the
Merger Agreement prior to closing, or if Debtors terminated
because NextEra was in breach of the Agreement.
Most importantly for purposes of this appeal, the Fee
provision also included an exception that was to govern if the
Public Utility Commission of Texas (“PUCT”) did not approve
6
the merger. That part of the provision stated that payment
would not be triggered if the Agreement was “terminated . . .
by [NextEra] . . . and the receipt of PUCT Approval (without
the imposition of a Burdensome Condition) [wa]s the only
condition . . . not satisfied or waived in accordance with this
Agreement.” App. 182 (emphasis added). The Fee provision
said nothing, however, about whether the $275 million would
be owed if, due to the PUCT’s declining to approve the
Agreement, Debtors took the initiative to terminate rather than
NextEra. Thus, under those circumstances, the default rule
applied: If the PUCT rejected the merger and Debtors
consequently terminated the Agreement, they would owe
NextEra $275 million upon the consummation of an alternative
deal, regardless of whether that alternative was better for the
estates.
Before the Merger Agreement could take effect,
Debtors were required to obtain approval from the Bankruptcy
Court, so, within days of finalizing the Agreement with
NextEra, they filed an appropriate motion with the court. In
that Approval Motion, Debtors explained the Termination Fee
provision as follows:
Upon Court approval of the Merger
Agreement, EFH Corp. and EFIH are liable for
the Termination Fee, in the amount of $275
million, as an allowed administrative expense
claim, in the event of certain termination events
in accordance with the Merger Agreement. The
Termination Fee is not payable in the event of,
among other things, certain terminations
resulting from breaches by NextEra or Merger
Subsidiary or following a termination by
NextEra at the Termination Date (as defined in
7
the Merger Agreement) where PUCT approval is
the only closing condition not satisfied. . . .
The Merger Agreement includes
provisions that allow for any higher or otherwise
better bids to emerge. From the execution of the
Merger Agreement until entry of the Approval
Order, the Debtors may solicit, initiate, and
facilitate higher or otherwise better offers
without paying the Termination Fee. . . . If the
Debtors terminate the Merger Agreement
following entry of the Approval Order to accept
another proposal, and the transaction
contemplated by such other proposal is
consummated, the Debtors would owe the $275
million Termination Fee.
App. 397–98 (citation omitted).
On September 19, 2016, after several creditors objected
to the proposed merger, the Bankruptcy Court held a hearing
regarding the Approval Motion. During that hearing, William
Hiltz, a member of Debtors’ financial advisory team testified
about whether the Termination Fee would be triggered upon
failure to achieve approval from the PUCT:
THE COURT: [I]f the Court confirms the
. . . NextEra deal, and that plan does not
consummate because of a failure to achieve
regulatory approval, is the break-up fee payable?
MR. HILTZ: If the Debtor enters into another
transaction, the answer is yes.
8
THE COURT: But if this transaction simply
falls apart because you don’t get regulatory
approval from the Public Utility Commission?
MR. HILTZ: Well, again, I think if the Debtor
enters into another transaction including a
reorganization involving its own creditors . . . it
would be payable.
THE COURT: . . . [B]ecause if this plan gets
confirmed for Debtors—not anything the
Debtors do wrong, they don’t get the regulatory
approval they need—this falls apart and a year
and a half from now they confirm a different plan
that’s not even a sale plan, say it’s a standalone
plan, that break-up fee would be payable?
MR. HILTZ: I believe so.
App. 535. Although Hiltz’s testimony did not address the
critical distinction between whether it was Debtors or NextEra
that initiated the termination upon PUCT disapproval, it was
otherwise accurate: payment of the Fee did not necessarily
hinge on whether either party was at fault for the PUCT’s
failure to approve, and the “alternative transaction” that would
trigger payment did not need to be a sale plan. Rather, as Hiltz
acknowledged to the Bankruptcy Court, the alternative could
be a standalone plan—meaning a resolution without the
involvement of a third party, under which at least some
creditors would have to agree to accept less than one hundred
percent payment and instead take debt and/or equity issued by
a reorganized company.
9
Later on at the hearing, however, Debtors’ counsel
contradicted Hiltz’s testimony. Initially, counsel informed the
court that the Fee would not be payable if the PUCT rejected
the plan and “NextEra walk[ed].” App. 541. But minutes later,
counsel added:
Suffice to say there’s no break-up fee if the
PUC[T] just denies—outright denies approval.
But if the PUC[T] imposes the burdensome
condition which is a significant hurdle, . . . a
break-up fee is triggered.
App. 547. This statement was inaccurate in that the triggering
of the Fee did not turn on whether the PUCT outright rejected
the merger or instead imposed a “burdensome condition,”
which a different provision of the Merger Agreement defined
with specificity. Rather, as we have said, whether the Fee
became payable upon PUCT disapproval hinged on whom it
was that took the initiative to terminate the agreement—
Debtors or NextEra. Thus, it was incorrect to state “there’s no
break-up fee if the PUCT . . . outright denies approval.” In
reality, if the PUCT flat-out rejected the merger, the Fee would
be payable, so long as it was the Debtors who terminated.
Debtors’ counsel’s misstatement was never corrected
during the September 19 hearing, though, and at the conclusion
of the hearing, the Bankruptcy Court entered an order
approving the Merger Plan and Agreement. The Approval
Order authorized Debtors to enter into the merger, approved
the Termination Fee on the terms provided for in the
Agreement, and authorized Debtors to pay the Termination Fee
to NextEra as an allowable administrative expense to the extent
it became due and payable under the Agreement. The Order
further provided that, in the event the Fee became payable,
10
EFH and EFIH would agree on the allocation of the payment
between their respective estates, and then seek the Bankruptcy
Court’s approval of such allocation. If EFH and EFIH were
ultimately unable to agree on how to divide the payment, the
Order stated that the Bankruptcy Court “would determine the
appropriate allocation of the Termination Fee” between the
estates. App. 455. Indeed, the Bankruptcy Court, was to
“retain jurisdiction over any matter or disputes arising from or
relating to the interpretation, implementation or enforcement
of th[e] Order.” App. 456.
Later reflecting on Debtors’ Approval motion, the
objections raised by the various creditors, and the September
19 hearing, the Bankruptcy Court would state that no one
“focused the Court on a critical fact: the Merger Agreement did
not set a date by which approval by the [PUCT] had to be
obtained.” App. 19. “Consequently,” the court wrote, no party
made it aware “that if the PUCT did not approve the NextEra
Transaction, the Debtors could eventually be required to
terminate the Merger Agreement and trigger the Termination
Fee unless NextEra terminated first of its own volition.” App.
19–20 (emphasis omitted). And, according to the court, “under
no foreseeable circumstances would NextEra terminate the
Merger Agreement . . . [b]ecause NextEra had the ability to
hold out . . . until the Debtors were forced by economic
circumstances to terminate.” App. 26 (emphasis omitted). Put
differently, because there was no date by which PUCT
approval had to be obtained before the merger dissolved
automatically, in the face of regulatory rejection, NextEra
could simply be patient, pursue all possible appeals, and wait
for Debtors to terminate first, which would allow NextEra to
collect the $275 million Termination Fee.
11
B. The Bankruptcy Court’s Reconsideration of the
Approval Order
On September 22, 2016, three days after the Bankruptcy
Court entered the Approval Order, the PUCT held a hearing at
which one of its Commissioners expressed concerns over the
Fee. Perhaps due to Debtors’ counsel’s misstatement at the
September 19 hearing before the Bankruptcy Court, the
Commissioner appeared to be under the false impression that
the Fee would be payable if the PUCT imposed burdensome
conditions, but not if it outright rejected the merger. And
perhaps partly based on that impression, he stated that the
Termination Fee “appear[ed] to be an effort to really tie the
[PUCT’s] hands” and force it to approve the merger without
any burdensome conditions. App. 690. In the Commissioner’s
eyes, if the PUCT imposed certain conditions on its approval,
then NextEra would just hold out for payment of the
Termination Fee, which the Commissioner feared might come
from Debtors’ “only asset,” Oncor—to the detriment of
Oncor’s customers. App. 694. NextEra’s purported hope,
then, according to the Commissioner, was that the PUCT
would be reluctant to trigger payment of the Fee, and would
therefore approve the merger as proposed in order to prevent
such payment.
In the aftermath of the Commissioner’s statement,
Debtors and NextEra submitted a letter to the Bankruptcy
Court on September 25, seeking to clarify the terms of the
Termination Fee provision. The letter began by stating the
parties’ joint view was that “NextEra Energy is not entitled to
a termination fee under the merger agreement if NextEra
Energy terminates the merger agreement because the [PUCT]
either approves the merger agreement transaction with
‘burdensome conditions’ (as defined in the merger agreement)
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or does not approve the merger agreement transaction.” App.
702. This statement corrected part of Debtors’ counsel’s
misstatement from the September 19 hearing, but it did not
address the critical related issue: what would happen if the
PUCT rejected the merger or approved it with burdensome
conditions and NextEra did not terminate.
That issue the letter waited until the penultimate
paragraph to discuss:
In other words, the $275 million termination fee
is triggered if EFH and/or EFIH terminate the
merger agreement as a consequence of the
Commission either not approving the merger
agreement transaction or approving the merger
transaction with the imposition of imposing of a
burdensome condition. In order for EFH and/or
EFH to pursue an alternative transaction, EFH
and EFIH believe that they would only terminate
in such a situation if they had an alternative
proposal to pursue. The termination fee is not
triggered if, under the same circumstances
NextEra Energy terminates the merger
agreement instead of EFH and/or EFIH.
App. 702. Importantly, like the Approval Motion and the
testimony at the September 19 hearing, the letter neglected to
explain that the Merger Agreement did not set a date by which
approval by the PUCT had to be obtained before the merger
dissolved on its own.
The next day, at a previously scheduled hearing, the
Bankruptcy Court detoured from the agenda to address the
comments of the PUCT Commissioner and the parties’
13
subsequent letter. The court acknowledged that it was
“sympathetic” to the Commissioner’s concerns, but it appeared
to be put at ease by the parties’ letters. App. 715. According
to the court, in the letter, “the parties clarified that . . . NextEra
will not seek to collect any portion of the termination fee
contemplated by the merger agreement in the event NextEra
terminates” because of PUCT rejection or PUCT approval with
burdensome conditions. App. 716. Again, though, it never
came up that that the Merger Agreement did not provide a date
by which PUCT approval had to be achieved. Instead, the
court proceeded to briefly address the Commissioner’s concern
that Oncor would be on the hook for the Termination Fee if it
became payable. It spelled out that the fee was “an issue for
the Bankruptcy Court and the creditors of EFH and EFIH, and
not for the PUCT, Oncor, and the rate payers,” because if the
fee was triggered it would “constitute an administrative
expense claim payable by EFH and EFIH.” App. 717.
Consequently, the court “encourage[d] the [PUCT] to review
the proposed merger . . . with an unblinking eye and in no way
to be influenced by the possible triggering of the termination
fee.” App. 718. The court then moved on to the previously
scheduled agenda. It made no changes to the September 19
Approval Order.
The next month, NextEra and Oncor submitted their
Joint Application for change of control of Oncor to the PUCT.
The Application asked for the PUCT to drop two central
features of a “ring-fence” the PUCT had previously imposed
on Oncor when it was owned by Debtors: (1) the requirement
that Oncor maintain an independent board of directors, and (2)
the ability of certain minority shareholders to veto dividends.
NextEra would not negotiate with regard to either feature,
leading members of the PUCT to refer to them as “deal killers.”
14
E.g., App. 765, 772. In April 2017, the PUCT formally denied
the Joint Application, concluding that the merger was not in
the public interest under the Texas Public Utility Regulatory
Act. The parties subsequently filed two requests for
reconsideration, but NextEra continued to hold firm on the
deal-killer terms. The PUCT denied both requests for the same
reasons provided in its original decision.
According to the Bankruptcy Court, at this point, the
merger was “clearly dead.” But NextEra showed no
indications of terminating the agreement. Instead, it filed an
appeal in Texas state court. In the words of the Bankruptcy
Court, NextEra made it “clear that [it] would appeal the
PUCT’s decision to all levels of review, leaving the Debtors no
choice but to terminate the Merger Agreement and risk
triggering the Termination Fee or else incur months or years of
continued interest and fee obligations.” App. 28.
On July 7, 2017, Debtors formally terminated the
Merger Agreement based on the failure to obtain regulatory
approval and NextEra’s alleged breach of the Agreement. The
same day, Debtors entered into a different merger agreement
with another party.
A few weeks later, on July 29, 2017, Appellees Elliott
Associates, L.P., Elliott International, L.P., and The Liverpool
Limited Partnership (collectively, “Elliott”), who are creditors
of Debtors, filed the motion to reconsider at issue in this
appeal. In its motion, Elliott sought reconsideration of the
Approval Order to the extent that the Approval Order
authorized Debtors to pay the Termination Fee under
circumstances where the parties failed to obtain PUCT
approval and Debtors were resultantly forced to terminate the
Agreement in order to pursue an alternative transaction.
15
Within days, NextEra filed a competing application with the
Bankruptcy Court seeking allowance and payment of the
Termination Fee upon Debtors’ consummation of the
alternative transaction, to which Elliott objected based on the
same grounds as in its motion to reconsider.
The Bankruptcy Court ultimately granted Elliott’s
motion, explaining that it had “fundamentally misapprehended
the facts as to whether the Termination Fee would be payable
if the PUCT failed to approve the NextEra Transaction.” App.
45. The court rejected NextEra’s argument that the motion was
untimely, concluding instead that the Approval Order was
interlocutory because it “d[id] not resolve all issues relating to
the Termination Fee,” such as the allocation of the Fee between
the Debtors’ estates. App. 36. In the alternative, the court
ruled that it was appropriate to grant the motion even if the
Approval Order was a final order, because “the interest of
justice outweigh[ed] the interest of finality.” App. 45.
On the merits, the court concluded that, had it possessed
complete knowledge of the facts at the time the Approval
Motion was filed, it could not have approved the Termination
Fee. Specifically, the court held that the Fee was not an
“actual, necessary cost[] and expense[] of preserving the
estate” under 11 U.S.C. § 503(b)(1)(A), because “[p]ayment of
a termination or break-up fee when a court (or regulatory body)
declines to approve the related transaction cannot provide an
actual benefit to a debtor’s estate sufficient to satisfy” the
statutory requirement. App. 43.
Accordingly, the Bankruptcy Court amended the
Approval Order to provide that:
16
The Termination Fee, upon the terms and
conditions of the Merger Agreement, is approved
in part and disallowed in part. The Termination
Fee is disallowed in the event that the PUCT
declines to approve the transaction contemplated
in the Merger Agreement and, as a result, the
Merger Agreement is terminated, regardless of
whether the Debtors or NextEra subsequently
terminates the Merger Agreement. In those
circumstances, the EFH/EFIH Debtors are not
authorized to pay the Termination Fee as a
qualified administrative expense or otherwise.
The Termination Fee is otherwise approved.
App. 12. NextEra then filed a timely appeal of the Bankruptcy
Court’s decision, and this Court agreed to hear the appeal
directly and on an expedited basis pursuant to 28 U.S.C.
§ 158(d)(2).
II. JURISDICTION
The Bankruptcy Court had jurisdiction under 28 U.S.C.
§§ 157 and 1334(b). We have jurisdiction under 28 U.S.C.
§ 158(d)(2).
III. DISCUSSION
On appeal, NextEra argues that the Bankruptcy Court
erred in granting Elliot’s motion to reconsider for two
independent reasons. First, NextEra contends that the motion
should have been denied because it was untimely. Second,
NextEra argues that, even if the motion was timely, it should
have been denied on the merits because, regardless of any
misapprehension of the facts, the Bankruptcy Court was right
17
in its initial determination that the Termination Fee, as
originally drafted, was an allowable administrative expense
under 11 U.S.C. § 503(b); thus, in NextEra’s view, there was
no error of law requiring correction.
A. The Timeliness of Elliott’s Motion for
Reconsideration
As the Bankruptcy Court correctly recognized, the
timeliness of Elliott’s motion depends in part on whether the
September 19, 2016 Approval Order was an interlocutory or a
final order. The Federal Rules of Bankruptcy Procedure do not
expressly authorize motions for reconsideration. But
bankruptcy courts, like any other federal court, possess
inherent authority, see Law v. Siegel, 571 U.S. 415, 420–21
(2014), and such authority permits courts to reconsider prior
interlocutory orders “at any point during which the litigation
continue[s],” as long as the court retains jurisdiction over the
case, State Nat’l Ins. Co. v. Cty. of Camden, 824 F.3d 399, 406
(3d Cir. 2016). Thus, if the Approval Order was interlocutory,
no strict time limit applied to Elliott’s motion for
reconsideration.
If, on the other hand, the Approval Order was final,
Elliot’s motion would be subject to the time restrictions of
Federal Rule of Civil Procedure 60. See Fed. R. Bankr. P. 9024
(providing that, with limited exceptions, Rule 60 applies in
cases under the Bankruptcy Code); Fed. R. Civ. P. 60(b) (“On
motion and just terms, the court may relieve a party . . . from a
final judgment, order or proceeding.”). When based on
mistake, newly discovered evidence, or fraud, a motion
brought under Rule 60(b) must be brought within one year of
the entry of the underlying order, and under all circumstances,
such a motion “must be made within a reasonable time.” Fed.
18
Rawle Civ. P. 60(c). Here, Elliott’s motion was filed less than a
year after the Approval Order was filed, but NextEra argues
that the motion was not made within a reasonable time because,
according to NextEra, Elliott could have raised its arguments
at the time the merger was initially approved.
We generally review timeliness determinations for an
abuse of discretion. See Bailey v. United Airlines, 279 F.3d
194, 202–03 (3d Cir. 2002) (reviewing for abuse of discretion
determination that motion for summary judgment was timely);
see also In re Fine Paper Antitrust Litig., 685 F.2d 810, 817
(3d Cir. 1982) (“[M]atters of docket control . . . are committed
to the sound discretion of the District Court.”). But the
threshold question of whether the Approval Order is
interlocutory or final is a legal issue that turns on the
interpretation of Rule 60—that is, whether the Approval Order
constitutes a “final . . . order” under the Rule. We exercise
plenary review over such questions involving the interpretation
of the Federal Rules of Civil Procedure. Garza v. Citigroup,
Inc., 881 F.3d 277, 280 (3d Cir. 2018). Accordingly, here, we
first exercise plenary review over the Bankruptcy Court’s
conclusion that the Approval Order was interlocutory. Once
we have answered that initial question, we review any
remaining aspects of the Bankruptcy Court’s timeliness
determination for an abuse of discretion. See Bailey, 279 F.3d
at 202–03.
Turning to the initial question, we begin by noting that
the rules of finality and appealability are different in the
bankruptcy context than in ordinary civil litigation. Because
“[a] bankruptcy case involves ‘an aggregation of individual
controversies,’” Bullard v. Blue Hills Bank, 135 S. Ct. 1686,
1692 (2015) (quoting 1 Alan N. Resnick & Henry J. Sommer,
Collier on Bankruptcy ¶ 5.08[1][b] (16th ed. 2014)), “Congress
19
has long provided that orders in bankruptcy cases may be
immediately appealed if they finally dispose of discrete
disputes within the larger case,” id. (quoting Howard Delivery
Serv., Inc. v. Zurich Am. Ins. Co., 547 U.S. 651, 657 n.3
(2006)). Indeed, the bankruptcy appeals statute “authorizes
appeals of right not only from final judgments in cases but from
‘final judgments, orders, and decrees . . . in cases and
proceedings.’” Id. (omission in original) (quoting 28 U.S.C.
§ 158(a)).
In light of these general principles, we have adopted a
flexible, pragmatic approach to finality in the bankruptcy
context. Century Glove, Inc. v. First Am. Bank of N.Y., 860
F.2d 94, 97 (3d Cir. 1988). Among the factors relevant to this
approach are “(1) ‘the impact of the matter on the assets of the
bankruptcy estate,’ (2) ‘the preclusive effect of a decision on
the merits,’ and (3) ‘whether the interests of judicial economy
will be furthered’” by an immediate appeal. In re Marcal
Paper Mills, Inc., 650 F.3d 311, 314 (3d Cir. 2011) (quoting
F/S Airlease II, Inc. v. Simon, 844 F.2d 99, 104 (3d Cir. 1988)).
The ultimate question, however, is whether the order “fully and
finally resolved a discrete set of issues, leaving no related
issues for later determination.” In re Taylor, 913 F.2d 102, 104
(3d Cir. 1990); see also Bullard, 135 S. Ct. at 1692.
Applying a flexible, pragmatic approach here, we agree
with the Bankruptcy Court that the Approval Order was
interlocutory. Assuming the “discrete set of issues” for
purposes of finality was those related to the Termination Fee
provision, the Order still reserved questions for later
determination. For one, the Order did not resolve how the Fee
would be allocated between EFH’s and EFIH’s respective
estates in the event it became payable. Rather, at a minimum,
the Order required the Bankruptcy Court to approve an
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allocation proposed by EFH and EFIH at a later date. Thus,
the Fee could not be paid without further court action. If EFH
and EFIH were unable to agree on such an allocation, the Order
provided that the Bankruptcy Court would have to determine
an appropriate allotment. That the Approval Order left this
allocation question unanswered is critical to the finality
analysis, because it means that the impact of the Order itself on
the assets of the respective estates was both uncertain and far-
off. The later allocation determination very well might have
had significant effects on the rights of other interested parties,
too, as we can assume that EFH and EFIH do not share all of
the same creditors. Even in the flexible, pragmatic world of
bankruptcy, “[f]inal does not describe th[e] state of affairs”
when “parties’ rights and obligations remain unsettled.”
Bullard, 135 S. Ct. at 1692.
It was not only the allocation issue that remained up in
the air either. Although the Approval Order authorized
Debtors to enter into the Merger Agreement and pay the
Termination Fee “to the extent it bec[a]me[] due and payable
pursuant to the terms and conditions of the Merger
Agreement,” the Order also expressly provided that the
Bankruptcy Court was “retain[ing] jurisdiction over any matter
or disputes arising from or relating to the interpretation,
implementation or enforcement of th[e] Order.” App. 455–56.
As it turns out, such a dispute has arisen: in a separate
adversary complaint that is not at issue in this appeal, Debtors
have alleged that, even if the Termination Fee provision were
enforced as originally drafted and approved, NextEra still
would not be entitled to the Fee, because, according to Debtors,
21
NextEra breached the Merger Agreement.2 It is exactly this
kind of dispute over which the Bankruptcy Court retained
jurisdiction in the Approval Order. Because the Approval
Order left open the possibility that the Bankruptcy Court would
need to decide when the Fee was payable, it was uncertain that
the Order itself would have any impact on the estates without
further court action.
Nonetheless, according to NextEra, the discrete
question for purposes of finality here was whether the
Termination Fee provision satisfied the legal standard
applicable to administrative expenses under 11 U.S.C.
§ 503(b). In NextEra’s view, the Approval Order was final
because, by its own terms, it provided that the Termination Fee
was approved “without any further proceedings before, or
order of, the Court.” App. 455. But this argument overlooks
the fact that the Order’s very next sentence provided the
significant caveat that the Bankruptcy Court would have to
approve the allocation of the Fee between the estates. Thus, as
we have said, in reality, the Fee could not have been paid until
further court action took place.
2
Debtors’ adversary complaint, which seeks a
declaratory judgment, was filed in the Bankruptcy Court before
Elliott’s motion for reconsideration was granted. See
Adversary Complaint, Energy Future Holdings Corp. v.
NextEra Energy, Inc., (In re Energy Future Holdings Corp.),
Ch. 11 Case No. 1:14-bk-10979, Adv. No. 17-50942 (Bankr.
D. Del. Aug. 3, 2017). At oral argument before this Court,
counsel for NextEra represented that the adversary proceeding
has been put on “hiatus” pending our resolution of this appeal.
Tr. of Oral Arg. at 11.
22
Also, the Supreme Court recently rejected a conception
of finality that “slic[ed] the case too thin.” Bullard, 135 S. Ct.
at 1692 (dismissing Debtor’s argument that “each time the
bankruptcy court reviews a proposed plan . . . it conducts a
separate proceeding” for purposes of the bankruptcy appeals
statute). NextEra’s proposed conception here, in our view,
would do just that: single out a particular question about a
particular provision of a merger agreement, chop it off of the
broader case, and deem it its own separate issue. This
conception takes our flexible, pragmatic approach to finality
too far.
Because we conclude that the Approval Order was
interlocutory, Elliott’s motion to reconsider was subject to no
explicit time restriction. Instead, the only timeliness argument
that NextEra might have is the doctrine of laches. To assert a
laches defense, NextEra would have to show that Elliott
inexcusably delayed its motion and that NextEra was
prejudiced as a result of such a delay. Tracinda Corp. v.
DaimlerChrysler AG, 502 F.3d 212, 226 (3d Cir. 2007).
Laches is an equitable doctrine, however, and the decision of
whether to recognize it as a defense in a particular case is left
to the discretion of the lower courts. Id. Here, we cannot say
that the Bankruptcy Court abused its discretion in refusing to
bar Elliott’s motion because of laches. The motion was filed
less than a year after the Approval Order was issued, within
weeks of Debtors terminating the Merger Agreement, and
actually before NextEra had even filed its application seeking
payment of the Termination Fee. The Fee provision in the
Merger Agreement was also complicated, and the record was
muddled at the time the Bankruptcy Court was making its
approval decision. Under these circumstances, we are unable
to conclude that Elliott inexcusably delayed the filing of its
23
motion.3 The Bankruptcy Court therefore did not abuse its
discretion in determining that the motion was timely.
B. The Merits of Elliott’s Motion for Reconsideration
1. The Applicable Legal Standard
Turning to the merits of Elliott’s motion, we must first
identify the applicable legal standard. We have, on occasion,
stated that lower courts “possess[] inherent power over
interlocutory orders, and can reconsider them when it is
consonant with justice do so.” State Nat’l Ins. Co., 824 F.3d at
417 (quoting United States v. Jerry, 487 F.2d 600, 605 (3d Cir.
1973)); see also Roberts v. Ferman, 826 F.3d 117, 126 (3d Cir.
2016) (“‘[T]he law of the case doctrine does not limit the
power of trial judges to reconsider their prior decisions,’ but
. . . when a court does so, it must explain on the record why it
is doing so and ‘take appropriate steps so that the parties are
not prejudiced by reliance on the prior ruling.’” (quoting
Williams v. Runyon, 130 F.3d 568, 573 (3d Cir. 1997))). The
Bankruptcy Court here, however, thought that its task required
3
NextEra argues that we should bar Elliott’s motion as
untimely because “the alleged infirmities forming the basis” of
the motion “all occurred (or failed to occur) before the
Bankruptcy Court entered the Approval Order.” Appellant’s
Br. at 28–29. And yet, according to NextEra, “Elliott sat on its
hands for nearly a year, waiting to see if it would reap the
benefits of a successful transaction induced by approval of the
Termination Fee.” Id. at 33. The Bankruptcy Court was better
equipped than we are to evaluate this contention, however, and
there simply is no evidence in the record before us that Elliott
acted with the motive NextEra alleges.
24
a little more. In part because bankruptcy proceedings
“involve[] the routine entry of interlocutory orders,” the
Bankruptcy Court concluded that parties in bankruptcy cases
should not be permitted to relitigate previously decided issues
“without good cause.” App. 30. The court therefore subjected
Elliott’s motion to the same standard that governs motions to
alter or amend a judgment under Federal Rule of Civil
Procedure 59(e). See Fed. R. Bankr. P. 9023 (incorporating
Rule 59). According to that standard, such a motion should be
granted only where the moving party shows that at least one of
the following grounds is present: “(1) an intervening change in
the controlling law; (2) the availability of new evidence that
was not available when the court [made its initial decision]; or
(3) the need to correct a clear error of law or fact or to prevent
manifest injustice.” United States ex rel. Schumann v.
Astrazeneca Pharm. L.P., 769 F.3d 837, 848–89 (3d Cir. 2014)
(quoting Max’s Seafood Café ex rel. Lou-Ann, Inc. v.
Quinteros, 176 F.3d 669, 677 (3d Cir. 1999)).
In our view, the Bankruptcy Court’s approach makes
sense, at least in the context of an order approving a merger
agreement and accompanying termination fee provision. If
courts could freely amend any interlocutory bankruptcy order,
the larger proceedings would be fraught with uncertainty, and
parties could never rely on prior decisions. Accordingly, we
will assess the merits of Elliott’s motion using the same
standard employed by the Bankruptcy Court.
In seeking reconsideration, Elliott has not alleged an
intervening change in the law or the availability of new
evidence. Its motion is instead based entirely on the third basis
for reconsideration provided above: the need to correct a clear
error of law or fact or prevent manifest injustice. In granting
the motion, the Bankruptcy Court concluded that it “had a
25
fundamental misunderstanding of the critical facts when it
[initially] approved the Termination Fee” because it was
unaware that the Merger Agreement did not set a date by which
PUCT approval had to be obtained. App. 38. This factual
error, the court said, led it to incorrectly apply the law
governing the permissibility of termination fees in bankruptcy
cases. According to the court, had it “properly apprehended
the facts at the time” it was considering Debtors’ Approval
Motion, “it could not have approved” the Termination Fee
provision as it was originally drafted. App. 44. In other words,
the Bankruptcy Court had committed “manifest errors” of both
fact and law, which required the court to amend the September
19 Approval Order so that payment would not be triggered
when the Merger Agreement was terminated—by either
party—as a result of the PUCT’s failure to approve the
transaction. App. 47.
To affirm, we need only conclude that the Bankruptcy
Court committed a clear error of fact or law, as the relevant
standard is disjunctive. See, e.g., Howard Hess Dental Labs.
Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 251 (3d Cir. 2010)
(citing Max’s Seafood, 176 F.3d at 677). We have never
adopted strict or precise definitions for “clear error of law or
fact” and “manifest injustice” in the context of a motion for
reconsideration, and we do not endeavor to do so here. We
have, however, suggested that there is substantial, if not
complete, overlap between the two concepts. See, e.g., id.
(“The purpose of a motion for reconsideration . . . is to correct
manifest errors of law or fact . . . .” (first alteration in original)
(quoting Max’s Seafood, 176 F.3d at 677)). To state what may
be obvious, the focus is on the gravity and overtness of the
error. See, e.g., Burritt v. Ditlefsen, 807 F.3d 239, 253 (7th Cir.
2015) (“A ‘manifest error’ occurs when the district court
26
commits a ‘wholesale disregard, misapplication or failure to
recognize controlling precedent.” (quoting Oto v. Metro Life.
Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000))); Venegas-
Hernandez v. Sonolux Records, 370 F.3d 183, 195 (1st Cir.
2004) (“[A] manifest error is ‘[a]n error that is plain and
indisputable, and that amounts to a complete disregard of the
controlling law.’” (second alteration in original) (quoting
Black’s Law Dictionary 563 (7th ed. 1999))). Thus, Elliott
must show more than mere disagreement with the earlier
ruling; it must show that the Bankruptcy Court committed a
“direct, obvious, [or] observable error,” Manifest Injustice,
Black’s Law Dictionary (10th ed. 2014), and one that is of at
least some importance to the larger proceedings.
Despite this heightened standard, we review a lower
court’s determination regarding a motion to reconsider for an
abuse of discretion. See, e.g., Howard Hess, 602 F.3d at 246.
To the extent the Bankruptcy Court’s determination was based
on factual findings, we review such findings for clear error. Id.
To the extent its determination was “predicated on an issue of
law, such an issue is reviewed de novo.” Max’s Seafood, 176
F.3d at 673 (italics omitted). Here, however, we are presented
with no such legal issue, because the decision to allow or deny
a termination fee is itself reviewed for only an abuse of
discretion. See In re Reliant Energy Channelview LP, 594 F.3d
200, 205 (3d Cir. 2010).
2. The Bankruptcy Court’s Claimed Error of
Fact
Review of the Bankruptcy Court’s purported factual
error is relatively straightforward. The parties agree that the
Merger Agreement did not set a date by which PUCT approval
had to be achieved. Although the Bankruptcy Court made no
27
express finding on the subject before it issued the Approval
Order, it later said that it was unaware that the Agreement
failed to provide such a date. As a starting point, we think the
best source for information about the Bankruptcy Court’s
subjective understanding is the court itself. Indeed, we must
accept the Bankruptcy Court’s factual conclusions regarding
its own subjective understanding unless they are clearly
erroneous. See Max’s Seafood, 176 F.3d at 673; cf. Monsanto
Co. v. E.I. Du Pont de Nemours & Co., 748 F.3d 1189, 1198
(Fed. Cir. 2014) (reviewing for clear error district court’s
findings that a party “had made factual misrepresentations of
its subjective understanding”). We see no reason to second-
guess the Bankruptcy Court’s admission that it initially failed
to recognize the absence of a deadline for PUCT approval,
because there was no mention of any such deadline in Debtors’
Approval Motion, the September 19 hearing testimony, or the
September 25 letter submitted by Debtors and NextEra.
NextEra contends that it would have been unusual for
the Agreement to include a deadline for regulatory approval
and that “[a]ccordingly, there was no need for the parties to call
attention to the fact that the transaction followed standard
market practice.” Appellant’s Br. at 18. But even assuming
NextEra is correct in its description of standard market
practices, its argument addresses a different issue than the one
before us. NextEra’s contention is essentially that the
Bankruptcy Court should have developed an accurate
understanding of the facts in the first instance based on the
record that was developed. Our inquiry is more limited,
though. The relevant question for our purposes is whether the
Bankruptcy Court—justified or not—misapprehended the
facts at the time it issued the Approval Order. Absent any
indication in the record that the Bankruptcy Court knew that
28
the Merger Agreement did not include a deadline for PUCT
approval, we cannot say that the court’s findings with regard
to its own subjective understanding were clearly erroneous.
3. The Bankruptcy Court’s Claimed Error of
Law and Decision to Reconsider the
Approval Order
Of course, the significance of the Bankruptcy Court’s
error of fact depends on how the error impacts the underlying
legal determination—that is, the permissibility of the
Termination Fee under the original terms of the Fee provision.
If the factual error was central to the relevant legal calculus,
we think it appropriate to deem it a clear or manifest error
warranting reconsideration. If, on the other hand, the factual
error had only a tangential impact on the legal determination,
the Bankruptcy Court would have abused its discretion in
concluding that it was a manifest error. The question then
would be whether, setting aside the factual error, the
Bankruptcy Court had committed a legal error so indisputable
and fundamental that it rose to the level of a manifest error of
law.
The legal calculus begins with our decision in Calpine
Corp. v. O’Brien Environmental Energy, Inc. (In re O’Brien
Environmental Energy, Inc.) (O’Brien), 181 F.3d 527, 532 (3d
Cir. 1999), where we held that courts do not have the authority
to “create a right to recover from [a] bankruptcy estate where
no such right exists under the Bankruptcy Code.” As a result,
termination fees are subject to the same general standard used
for all administrative expenses under 11 U.S.C. § 503, which,
in relevant part, permits the payment of post-petition
administrative expenses only to the extent that they constitute
“the actual, necessary costs and expenses of preserving the
29
estate,” 11 U.S.C. § 503(b)(1)(A) (2012). See O’Brien, 181
F.3d at 535. In light of this statutory requirement, we rejected
application of a business judgment rule, under which a
requested termination fee would be approved if the debtor had
a good faith belief that the fee would benefit the estate.
O’Brien, 181 F.3d at 535. “[T]he allowability of break-up
fees,” we said, instead “depends upon the requesting party’s
ability to show that the fees [a]re actually necessary to preserve
the value of the estate.”4 Id.
How can a termination fee provide such a benefit to a
debtor’s estate? In O’Brien, we recognized two possible ways.
First, we said that “such a benefit could be found if assurance
of a break-up fee promoted more competitive bidding, such as
by inducing a bid that otherwise would not have been made and
without which bidding would have been limited.” Id. at 537.
Second, “if the availability of break-up fees and expenses were
to induce a bidder to research the value of the debtor and
convert the value to a dollar figure on which other bidders can
4
We explained that this standard applies to all requests
for terminations fees, as long as the claimed right to recover
“arose after [the debtor] filed for bankruptcy protection and
began marketing its assets for sale.” O’Brien, 181 F.3d at 532;
see also id. at 535 (reasoning that there existed no “compelling
justification for treating an application for break-up fees and
expenses under § 503(b) differently from other applications for
administrative expenses”). Thus, it is immaterial that O’Brien
differed from this case in that the bankruptcy court there “had
specifically denied breakup fees as part of the sale process.”
Dissenting Op. at 4. Here, like in O’Brien, NextEra’s right to
recover the Termination Fee arose after Debtors had initiated
the bankruptcy proceedings. O’Brien therefore applies.
30
rely, the bidder may . . . provide[] a benefit to the estate by
increasing the likelihood that the price at which the debtor is
sold will reflect its true worth.” Id. A decade after O’Brien,
we identified a third way a termination fee could preserve the
value of an estate: by assuring that a bidder “adhered to its bid
rather than abandoning its attempt to purchase . . . in the event
that the Bankruptcy Court required an auction for [the] sale” of
the relevant asset. In re Reliant Energy, 594 F.3d at 207.
It bears emphasis, however, that we have always said
these are ways a termination fee might confer a benefit on an
estate. See, e.g., O’Brien, 181 F.3d at 537 (explaining that
these were instances “where a benefit could be found” or
“may” be found). We have never held that bankruptcy courts
must allow fees whenever they find that one of the above
features is present. Rather, it is ultimately within a bankruptcy
court’s discretion to approve or deny a termination fee based
on the totality of the circumstances of the particular case. See
In re Reliant Energy, 594 F.3d at 205. Exercising that
discretion and taking into account all of the relevant
circumstances, the bankruptcy court must make what is
ultimately a judgment call about whether the proposed fee’s
potential benefits to the estate outweigh any potential harms,
such that the fee is “actually necessary to preserve the value of
the estate,” O’Brien, 181 F.3d at 535. See In re Reliant Energy,
594 F.3d at 208 (holding that the bankruptcy court did not
abuse its discretion in denying a proposed fee when the
“potential harm to the estate the break-up fee would cause by
deterring other bidders from entering the bid process
outweighed” the benefit the fee might have conferred by
securing a bidder’s adherence to its bid).
Here, the Bankruptcy Court’s error of fact means that
the Bankruptcy Court had overlooked a significant potential
31
harm when it initially approved the Termination Fee as drafted
by the parties. The Bankruptcy Court failed to initially
recognize that Debtors had essentially gambled on PUCT
approval. If the PUCT declined to approve the merger, Debtors
would owe the $275 million Termination Fee unless NextEra
took the initiative to terminate the Agreement first. But the
Bankruptcy Court did not appreciate that, since the Merger
Agreement included no deadline by which PUCT approval had
to be obtained before the deal would dissolve on its own,
NextEra had little incentive to terminate the agreement first on
its own volition. Instead, NextEra could simply wait for
Debtors to terminate, which would trigger payment of the $275
million Fee. Under those circumstances, the Termination Fee
would provide no benefit to estates. It would in fact be
detrimental: not only would the estates be out $275 million, but
Debtors would be back to square one and, with the passage of
time, in a worse off position—desperate to accept an
alternative transaction.
Due to its factual error, the Bankruptcy Court failed to
weigh this potential harm to the estates against the potential
benefits. There is no question that the Termination Fee
conferred some benefit by inducing NextEra to make the
highest bid that Debtors received. See O’Brien, 181 F.3d at
537. But we cannot look at that benefit in a vacuum. Unlike
the circumstances contemplated in O’Brien, NextEra’s bid was
not designed to provide a competitive benefit. And although
the Termination Fee was intended to induce NextEra to adhere
to its bid, see In re Reliant Energy, 594 F.3d at 207, this benefit
was potentially negated by the perverse incentive that could
result. Indeed, the Fee provision would potentially induce
NextEra to adhere to its bid in a particular way. It would allow
NextEra to hold firm against any burdensome conditions.
32
Rather than negotiate on its “deal killer” conditions, NextEra
could remain uncompromising and pursue appeals until
Debtors were forced to terminate the Agreement out of
financial necessity.
Looking at the totality of the circumstances, we do not
think the Bankruptcy Court abused its discretion in concluding
that a scenario where “Debtors were forced to terminate the
Merger Agreement . . . because NextEra had the Debtors in a
corner . . . would have been predictable” had the court
possessed a complete understanding when it initially approved
the Termination Fee.5 With an accurate view of the facts, one
would have seen that, by inducing NextEra’s bid, the
Termination Fee might eventually maximize the value of the
estates—assuming the deal closed. This the Bankruptcy Court
recognized at the outset. But the Fee also created substantial
financial risk if the PUCT did not approve the transaction and,
as a result, closing did not take place. When it initially
approved the Fee, the Bankruptcy Court did not fully
appreciate this risk. A court also could have, in exercising its
discretion, determined that the Fee provision would itself make
closing less likely to occur, because if the PUCT imposed
conditions that NextEra did not like, NextEra would have less
5
Contrary to the Dissent’s suggestions, see Dissenting
Op. at 2, the Bankruptcy Court, in its opinion, stated explicitly
that it was not using hindsight when reconsidering the issue of
whether the Termination Fee was allowable, and we see
nothing in the record or the Bankruptcy Court’s reasoning that
contradicts this disclaimer. We therefore need not reach the
question of whether it is permissible for a court to act based on
hindsight when considering a proposed termination fee’s
compliance with O’Brien.
33
reason to compromise and could instead simply wait for the
Debtors to terminate and trigger payment of the $275 million
Fee. This problem the Bankruptcy Court, by its own
admission, completely missed when it approved the Fee.
In sum, the Termination Fee provision had the potential
of providing a large benefit to the estates, but it also had the
possibility to be disastrous. Once it had a complete
understanding, the Bankruptcy Court properly weighed the
various considerations and determined that the potential
benefit was outweighed by the harm that would result under
predictable circumstances. In other words, the risk was so
great that the Fee was not necessary to preserve the value of
Debtors’ estates. Having made such a determination, the
Bankruptcy Court did not abuse its discretion in denying the
Fee in part.6
The Bankruptcy Court also did not abuse its discretion
in concluding that its previous factual error was a clear or
manifest one that justified the partial denial of the Fee on a
motion for reconsideration.7 As we have already explained,
6
According to the Dissent, it was error for the
Bankruptcy Court to “engage[] in an after-the-fact assessment
of benefit to the estates as if no initial approval had been
granted.” Dissenting Op. at 4. But an “after-the-fact
assessment” is inevitable in the context of a motion for
reconsideration, and the court did not act “as if no initial
approval had been granted.” Rather, as we have said, it
subjected itself to the heightened Rule 59(e) standard.
7
We therefore need not reach the question of whether
the court also committed a manifest error of law and do not
hold, as the Bankruptcy Court did, that “[p]ayment of a
34
the error of fact was obvious and indisputable. Indeed,
NextEra concedes that the Merger Agreement did not include
a date by which PUCT approval had to be obtained. The
factual error also had a substantial impact on the Bankruptcy
Court’s O’Brien analysis, as the above discussion illustrates.
The error led the court to fundamentally misjudge the
likelihood that the Termination Fee would be harmful to the
estates.
To be sure, we have said that when a court reconsiders
a prior decision, it must “take appropriate steps so that the
parties are not prejudiced by reliance on the prior ruling.”
Roberts, 826 F.3d at 126 (quoting Williams, 130 F.3d at 573).
Here, NextEra purportedly spent a significant amount of
money in its attempt to obtain PUCT approval. As NextEra
acknowledges, however, it has an alternative way to seek
reimbursement for those expenses: its Application for
Allowance and Payment of Administrative Expenses in the
amount of nearly $60 million is currently pending before the
Bankruptcy Court. We are also mindful of the fact that
NextEra believed for roughly a year that it would be entitled to
payment of the Termination Fee if Debtors terminated the
Agreement due to the PUCT’s declining to approve the merger,
and that NextEra formed expectations accordingly. But we
termination or break-up fee when a court (or regulatory body)
declines to approve the related transaction can[] [never]
provide an actual benefit to a debtor’s estate sufficient to
satisfy the O’Brien standard,” App. 43. We hold only that the
Bankruptcy Court did not abuse its discretion in concluding
that, in this particular case, the risk of harm was so great that
the Termination Fee was not necessary to preserve the value of
Debtors’ estates.
35
think general principles of reliance were adequately protected
in this case by the heightened Rule 59(e) standard that the
Bankruptcy Court employed.
That the heightened standard was satisfied here is in and
of itself proof that this case is anomalous. Reconsideration was
warranted only because the Bankruptcy Court failed to discern
a critical fact that profoundly altered the underlying legal
determination. If we were presented with anything less, our
conclusion may very well have been different.
Reconsideration remains a form of relief generally reserved for
“extraordinary circumstances.” In re Pharmacy Benefit
Managers Antitrust Litig., 582 F.3d 432, 439 (3d Cir. 2009)
(quoting Christianson v. Colt Indus. Operating Corp., 486 U.S.
800, 816 (1988)). And yet, it is also a form of relief generally
left to the discretion of lower courts. That, of course, is no
accident. It is a product of our recognition that some “fact-
bound issues . . . are ill-suited for appellate rule-making,”
United States v. Tomko, 562 F.3d 558, 565 (3d Cir. 2009) (en
banc), and that the matters under our review have often been
“decided by someone who is thought to have a better vantage
point than we on the Court of Appeals,” id. (quoting United
States v. Mitchell, 365 F.3d 215, 234 (3d Cir. 2004)). See
generally id. at 564–66 (discussing principles underlying the
abuse of discretion standard in both civil and criminal cases).
In this case, we have little doubt that the Bankruptcy Court was
“better positioned . . . to decide the issue[s] in question.”
McLane Co., Inc. v. EEOC, 137 S. Ct. 1159, 1166–67 (2017)
(quoting Pierce v. Underwood, 487 U.S. 552, 560 (1988)).
Having examined the record and the Bankruptcy Court’s
reasoning closely, we cannot say that it abused its discretion in
taking the unusual step of reconsidering its prior decision.
36
IV. CONCLUSION
For the foregoing reasons, we will affirm the
Bankruptcy Court’s Order granting Elliott’s motion for
reconsideration.
37
In re: ENERGY FUTURE HOLDINGS CORP.
No. 18-1109
RENDELL, Circuit Judge, dissenting:
While I am reluctant to dissent because I have no
doubt that the Bankruptcy Court carefully considered its
decision to reverse course and disallow the previously
approved Termination Fee, two significant aspects of this
case concern me: first, the grant of a delayed reconsideration
motion when there had been no clear error of fact or law, and,
second, the flawed analysis of the benefit to the estates as
though there had been no pre-approval of the Fee as part of
the Merger Agreement. I conclude that the Bankruptcy Court
abused its discretion in granting reconsideration, and,
therefore, I disagree with the Majority’s affirmance of the
Bankruptcy Court’s order.
Admittedly, the facts of the case presented a difficult
situation for the Bankruptcy Court. The Next Era deal would
have brought $9.5 billion to the estates. When that deal failed
to obtain regulatory approval, the Debtors were forced to
terminate and seek a new deal, which would bring “materially
less” to the estates.1 The Bankruptcy Court was thus faced
1
Elliott Br. at 19.
with the prospect of further depleting the estates by payment
of the $275 million Termination Fee.2
Nonetheless, the reconsideration of the previously
approved Fee was uncalled for. The Bankruptcy Court may
have “misapprehended” that the Fee would be payable in the
situation that developed, but this was no legal or factual error.
It was simply a failure to appreciate a particular set of
potential consequences which became apparent in the light of
day. But hindsight cannot justify nullifying a material term of
the deal that was struck with all of the facts on the table.
Here, the parties fully appreciated the potential scenarios at
the time the Fee was initially approved. Indeed, when Elliott
filed the reconsideration motion, the Debtors—who had every
incentive to cry foul as to the initial deal and avoid paying the
Fee—opposed Elliott’s motion, calling the motion
“Machiavellian.”3
The Bankruptcy Court seems to say that had it
appreciated this eventuality, it would not have approved the
Fee, but this defies logic and common sense. The Court had
considered the Fee and its importance to the deal extensively
in its initial approval of it as part of the Merger Agreement.
2
I submit that the fact that the Debtors were left to accept a
less favorable deal is the real culprit. Had the Debtors
terminated to pursue a higher and better offer after regulatory
approval of the Next Era deal was denied, there would have
been no reconsideration of the initial approval of the fee.
Indeed, that would have been a common scenario that the Fee
guarded against. Thus, the issue of the denial of regulatory
approval or an end date for approval is a red herring.
3
A. 1206.
2
The many benefits to the estates were apparent to the
Bankruptcy Court. In particular, the Court stated, “I think the
evidence overwhelmingly indicates that a breakup fee was
necessary to induce NextEra to make a bid, and to move
forward with a merger agreement,”4 and “[i]t’s clear that the
termination fee went up at the end of the process but it went
up primarily, I believe, because they walked away from the
match right, and the combination of match right, lower
breakup fee was replaced with no match right and a higher
breakup fee.”5 With regard to the size of the Fee, the Court
concluded, “[1.47%] is an appropriate number for a case of
this size”—that is, $18.7 billion—and “[t]he evidence is clear
that this is on the low end of utility-type transactions [and] on
the low end of this Court’s experience with regard to breakup
fees that I have approved numerous times.”6 Clearly, the Fee
was a necessary and integral aspect of the deal. Indeed,
NextEra would have “walked” without it.7 The Debtors
urged the Court to approve the Fee as part of the deal, lest
they have to go “back to the drawing board.”8 The
Bankruptcy Court engaged in a thoughtful assessment of the
Fee’s value to the deal.9 Thus, there was no legal flaw in the
4
A. 578.
5
A. 579.
6
A. 578.
7
A. 483-85.
8
A. 549.
9
Although, as explained below, the controlling precedent,
O’Brien and Reliant, involved consideration of the fee when
presented later as a cost of administration, rather than when
pre-approved as part of a sale agreement, the “benefit” or
“value” of the fee is the standard for both. See, e.g., In re
Philadelphia Newspapers, LLC, No. 09-11204, 2009 WL
3
original approval, let alone a clear error. Therefore,
reconsideration was unwarranted.
But the Bankruptcy Court’s reasoning suffers from
another infirmity. It engaged in an after-the-fact assessment
of benefit to the estates as if no initial approval had been
granted, citing to O’Brien and Reliant. The Court reasoned
that the Fee was not an allowable administrative expense
under 11 U.S.C. § 503(b)(1)(A) because “[p]ayment of a
termination or break-up fee when a court (or regulatory body)
declines to approve the related transaction cannot provide an
actual benefit to a debtor’s estate sufficient to satisfy the
O’Brien standard.”10 The Court considered what did happen
and conducted an O’Brien analysis anew. But this after-the-
fact assessment of benefit was improper because the Fee had
initially been approved as part of the Merger Agreement.
O’Brien and Reliant are distinguishable because, in
those cases, the court had specifically denied breakup fees as
part of the sale process. The issue before us involved the
denial of the later, post-sale requests for the fee by the
unsuccessful bidders as an administrative expense under §
503.11 As the Majority notes here, in the Approval Order the
3242292 (Bankr. E.D. Pa. Oct. 8, 2009), rev’d in part on
other grounds, 418 B.R. 548 (E.D. Pa. 2009) (using O’Brien
to analyze whether to authorize a breakup fee pre-auction).
10
A. 43.
11
It is interesting to note that in both O’Brien and Reliant, the
bankruptcy courts did not dismiss the unsuccessful bidders’
later requests out-of-hand but seriously considered the role
their bids had played in moving the sale process forward
when assessing the value to the estates. The Bankruptcy
4
Bankruptcy Court had already authorized the Debtors to pay
the Fee as an allowable administrative expense that preserved
value for the estates to the extent it became due and payable
under the Merger Agreement.12
The United States Court of Appeals for the Fifth
Circuit has noted this tension in In re ASARCO, L.L.C., 650
F.3d 593 (5th Cir. 2011). There, the Court observed that
“[t]he unsuccessful bidders in O’Brien and Reliant Energy
sought payment for expenses incurred without the court’s pre-
approval for reimbursement, and thus section 503 was the
proper channel for requesting payment.” Id. at 602. Here,
due to the previous approval, the Bankruptcy Court’s analysis
of the after-the-fact benefit to the estates—or lack thereof—
was misplaced. The Fee had been properly approved as part
of the Merger Agreement, and there was no issue of
allowance after the fact of an administrative expense. All that
remained was to allocate and pay the previously approved
Fee. There is no place in our precedent for a “double” § 503
analysis, where a party could seek approval of a fee as a term
of a deal and then get another bite at the O’Brien apple,
urging there was no value, if the deal sours. And yet that is
what the Bankruptcy Court did here.
The reconsideration of a previously approved term of a
deal, based on a bankruptcy court’s failure to appreciate all of
Court’s reasoning here, however, focused on later events,
namely the denial of regulatory approval, as depriving the bid
of value. I suggest this was off target, even if it had not been
an abuse of discretion to entertain a motion for
reconsideration.
12
Majority Op. at 10.
5
the potential ramifications of the term, sets a troubling—if not
dangerous—precedent. Parties to commercial transactions
present the terms of the deal to the court for approval and,
once approved, are entitled to rely on the court’s order, which
is based on a thoughtful, well-reasoned analysis. Here, that
should have been the guiding principle, and the grant of
reconsideration so as to nullify the previously approved Fee
when there was no clear error of fact or law was an abuse of
discretion.
6