Natixis Funding v. GenOn Mid-Atl ( 2022 )

Case: 21-20557 Document: 00516412657 Page: 1 Date Filed: 07/29/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
July 29, 2022
No. 21-20557 Lyle W. Cayce
Clerk
In re GenOn Mid-Atlantic Development, L.L.C.
Debtor,
Natixis Funding Corporation,
Appellant,
versus
GenOn Mid-Atlantic, L.L.C.,
Appellee.
Appeal from the United States District Court
for the Southern District of Texas
No. 4:19-cv-3078
Before Smith, Wiener, and Southwick, Circuit Judges.
Jerry E. Smith, Circuit Judge:
GenMa is a power company that, long ago, leased two coal-fired power
plants from the Lessors. To comply with those leases, GenMa paid NFC
$130 million to insure the Lessors up to that sum if GenMa didn’t pay rent.
Too late, NFC realized it had promised the Lessors more than $130 million.
The Lessors forced NFC to honor its promise, and NFC sued GenMa and
others for its losses.
Case: 21-20557 Document: 00516412657 Page: 2 Date Filed: 07/29/2022
No. 21-20557
GenMa removed NFC’s claims to the Southern District of New York,
which then transferred those claims to a bankruptcy court in Texas. After
losing there and at the district court, NFC appeals. It says that its claims
against GenMa should return to New York state court because the federal
court lacked jurisdiction or because federal law required abstention. NFC
also insists, pressing four contract-law theories, that GenMa must cover
NFC’s losses.
We disagree. The district court had jurisdiction; abstention was not
required; and NFC’s claims lack merit.
I.
The defendant-appellee is GenOn Mid-Atlantic—GenMa for short.
GenMa operates several power plants in Maryland. 1 The firm is a subsidiary
of GenOn Energy and NRG Energy, one of the largest retail power companies
in America.
About two decades ago, GenMa leased two coal-fired power plants
from various entities, whom we will call the Lessors. 2 In those leases, GenMa
made two promises. First, GenMa agreed not to grant any liens on its assets.
Second, GenMa agreed to obtain credit for the Lessors to secure six months’
worth of rent payments, but GenMa would not grant liens on its own assets
to collateralize that credit. That restriction ensured that the Lessors’ drawing
that credit would not diminish GenMa’s ability to pay rent.
For years, GenMa got that credit support from its corporate parent,
GenOn Energy (“GenOn”). Things changed in 2016. GenMa had obtained,
1
GenOn Mid-Atlantic, LLC, Annual Report (Form 10-K), at 29 (Mar. 30, 2018).
2
The Lessors are eleven LLCs named after the two power plants at issue: Morgan-
town OL1–OL7 and Dickerson OL1–OL4.
2
Case: 21-20557 Document: 00516412657 Page: 3 Date Filed: 07/29/2022
No. 21-20557
for the Lessors, letters of credit from JP Morgan Chase. But those letters
were expiring soon, and GenOn, which had backed them, was struggling to
pay its own bills. Because of GenOn’s distress, NRG, which owned GenOn
and GenMa, declined to back new letters of credit. And GenMa had no other
investment-grade affiliates that could guarantee its rent.
Needing another way to post credit for the Lessors, GenMa turned to
its strengths. At the time, it was financially stable and had some cash on hand,
so it decided to buy a letter of credit.
GenMa took its proposal to Natixis Funding Corporation (“NFC”),
the plaintiff-appellant. A subsidiary of a large French bank, NFC sells letters
of credit and other structured financial products. Mindful of the leases,
GenMa insisted on “structur[ing]” its purchase “as a prepayment” and not
as “a cash collateralized instrument.” GenMa even shared its leases with
NFC’s team, highlighting the “qualifying credit support requirements.”
Both sides engaged sophisticated representatives for the negotiations.
Two months later, after exchanging multiple drafts, GenMa and NFC
inked the Payment Agreement, under which GenMa paid NFC $130 million
plus a $1.4 million letter-of-credit fee. The $130 million sum reflected the
greatest amount of credit that GenMa had to provide the Lessors in one lease
period. In exchange, NFC promised to obtain letters of credit from its New
York affiliate, which we will call Natixis, for the Lessors. If the letters went
undrawn, NFC would pay up to $130 million in rent to the Lessors on
GenMa’s behalf. If the letters were drawn, NFC would reimburse Natixis for
those draws.
Reflecting GenMa’s need to avoid creating a lien, which its leases pro-
scribed, the Payment Agreement repeatedly disclaimed GenMa’s interest in
the $130 million payment to NFC. That payment, the Agreement stressed,
was “in full,” upfront, and “irrevocabl[e].” GenMa, it continued, renounced
3
Case: 21-20557 Document: 00516412657 Page: 4 Date Filed: 07/29/2022
No. 21-20557
any “interest, claim, reversionary or residual interest” in the payment. The
Agreement also assured that NFC would bear all risk and reward on the pay-
ment. NFC would receive “any returns, interest, gains[,] or other earnings”
that accrued and would assume all risk of the payment’s loss. And the parties
“understood and agreed that . . . the [$130 million] has been indefeasibly paid
by [GenMa] to NFC.” (Emphasis added.)
The Agreement protected NFC in three relevant ways.
First, the Agreement capped NFC’s duty to pay rent or to allow credit
draws at each Lessor’s share of $130 million—GenMa’s payment amount.
The Agreement called that share the “Excess Capacity of Lessor.” Letter-of-
credit draws by, or lease payments to, a Lessor would reduce its “Excess
Capacity.” When that capacity reached zero, NFC’s duties to pay rent or to
provide letters of credit to that Lessor would cease.
Second, GenMa warranted that the Payment Agreement didn’t breach
its promises to the Lessors, including the promise not to incur liens to secure
their credit support. If GenMa breached that warranty, it would indemnify
NFC against costs incurred to enforce its rights under the agreement.
Third, GenMa agreed to indemnify NFC against losses from “judicial
proceeding[s] . . . brought or threatened” by third parties. But that indemnity
excluded, among other things, “any reimbursement obligation to . . . any . . .
Person in respect of any” lease payment or letter-of-credit disbursement.
After NFC and GenMa executed the Payment Agreement, Natixis
issued letters of credit to the Lessors. But those letters covered all lease
periods—over $2 billion in rent—and did not cap draws as the Agreement
allowed.
Immediately, several Lessors questioned whether the Natixis letters
complied with the leases’ credit-support requirement. They objected that
4
Case: 21-20557 Document: 00516412657 Page: 5 Date Filed: 07/29/2022
No. 21-20557
GenMa had used its own cash to buy the letters. In early 2017, five Lessors
noticed GenMa’s default and directed their representative, the indenture
trustee, to draw $125 million on the JP Morgan letters of credit before they
expired. The trustee duly drew the funds and escrowed the proceeds.
After those draws, GenMa and the Lessors sued each other in New
York state court, disputing whether the Natixis letters of credit complied with
GenMa’s leases. 3 The Lessors’ suit included, as defendants, GenMa’s cor-
porate parents, GenOn and NRG.
In June 2017, days after the Lessors sued, GenOn and several
subsidiaries—but not GenMa—filed for bankruptcy in the Southern District
of Texas. GenOn soon moved the bankruptcy court to estimate the value of
the Lessors’ claims against it at zero dollars. That motion required the bank-
ruptcy court to examine the credit-support requirement in GenMa’s leases.
After discovery, the bankruptcy judge held a ten-day trial and granted
GenOn’s motion, valuing the Lessors’ claims against GenOn at zero dollars.
In December, the parties to the state-court suits—notably GenMa,
GenOn, and the Lessors—outlined the terms of a settlement. They agreed
to release all claims against each other. In exchange, GenMa promised to pay
off the Lessors’ debt on the leases with cash and debt, keeping at least
$25 million in cash on hand. 4 The bankruptcy court then enshrined the
settlement term sheet in GenOn’s reorganization plan. The settlement, the
court explained, thwarted “complex and protracted litigation” that could
3
GenOn Mid-Atlantic, LLC v. Morgantown OL1 LLC, No. 651181/2017 (N.Y. Sup.
Ct. filed Mar. 7, 2017); Morgantown OL1 LLC v. GenOn Mid-Atlantic, LLC,
No. 653146/2017 (N.Y. Sup. Ct. filed Jun. 9, 2017).
4
See In re GenOn Energy, Inc., No. 17-33695 (Bankr. S.D. Tex. filed Dec. 10, 2017)
(ECF No. 1216) (for the settlement term sheet).
5
Case: 21-20557 Document: 00516412657 Page: 6 Date Filed: 07/29/2022
No. 21-20557
“derail the Debtors’ reorganization efforts.”
Flashback to June, just after GenOn’s bankruptcy filing. When
GenMa’s rent came due at the end of that month, GenMa asked the Lessors’
trustee to use the proceeds of the JP Morgan letters, which remained
escrowed, to cover its rent. The trustee refused and, when GenMa did not
pay rent, drew $125 million on Natixis’s letters. Natixis honored those draws,
which NFC duly repaid.
At that point, NFC and Natixis realized that they were overexposed.
They already had paid the Lessors $125 million. Yet they had promised the
Lessors tens of millions more in credit support for the next lease period. So
if the Lessors drew on the letters again, the liability of NFC and Natixis could
far exceed $130 million.
Alarmed, Natixis terminated the letters of credit, giving sixty days’
notice as the letters required. But before that time could run, the Lessors
tried to draw another $50 million on the letters. Natixis refused to honor
those draws. Instead, Natixis and NFC sued the Lessors, the indenture
trustee, and GenMa, in New York state court.
This appeal concerns only NFC’s claims against GenMa. 5 NFC
asserted two contract claims: NFC first claimed that GenMa had breached
its warranty that their Agreement did not break GenMa’s promises to the
Lessors—namely, GenMa’s promise not to use its own assets to secure the
Lessors’ credit support. NFC next asserted a breach of the implied covenant
of good faith and fair dealing.
Contending that those claims “related to” GenOn’s bankruptcy,
5
Against the Lessors and the indenture trustee, Natixis asserted claims of unjust
enrichment and sought a declaration that the draws were improper. But those claims are
not relevant here.
6
Case: 21-20557 Document: 00516412657 Page: 7 Date Filed: 07/29/2022
No. 21-20557
28 U.S.C. § 1334(b), GenMa removed them to the Southern District of New
York under § 1452. GenMa then moved to transfer those claims to the
Southern District of Texas for resolution before the bankruptcy judge manag-
ing GenOn’s reorganization. GenMa pointed out that the bankruptcy judge
had evaluated the Lessors’ claims regarding the same lease provisions during
the claims-estimation trial. “No court,” GenMa reasoned, “is more familiar
with the legal and factual issues underlying the Removed Claims than the
Texas Bankruptcy Court.”
NFC moved to remand to state court. It pointed out that GenOn, not
GenMa, was bankrupt, and that GenOn had confirmed its reorganization
plan. NFC also claimed that the dispute between it and GenMa—a contract
dispute between non-debtors—would not impact GenOn’s assets or
reorganization. And even if there were jurisdiction, NFC argued, the district
court could not exercise it. Section 1334(c)(2) requires a district court with
related-to-bankruptcy jurisdiction to abstain from hearing claims where—
among other requisites—“an action” regarding those claims “could not have
been commenced” in federal court and where a state court could have
“timely adjudicated” those claims. According to NFC, those requisites were
met.
GenMa contested both points. Against remand, GenMa observed that
GenOn had not completed its confirmed reorganization plan and so had “not
yet emerged from bankruptcy.” GenMa warned that NFC’s claims threat-
ened to torpedo GenOn’s reorganization by “disrupt[ing] the careful balance
struck” in the settlement between the Lessors, GenMa, and GenOn. Against
abstention, GenMa stated that diversity jurisdiction would exist had the
removed claims started in federal court and that the bankruptcy court, already
familiar with the dispute, could resolve it faster than could the state court.
At a hearing on those motions, the parties clashed over whether the
7
Case: 21-20557 Document: 00516412657 Page: 8 Date Filed: 07/29/2022
No. 21-20557
removed claims could affect GenOn’s reorganization. Observing that the
bankruptcy court would be “in the best position” to answer that question, the
district court, Judge George Daniels, directed the parties to solicit the bank-
ruptcy court’s views.
The parties duly moved the bankruptcy judge for a hearing. There,
Chief Judge David Jones opined that NFC’s claims threatened a “huge
potential effect” on GenOn’s reorganization, that there is “a very close tie
between the resolution of [NFC’s] claims and the ultimate consummation of
[GenOn’s] plan,” and that his court had jurisdiction to resolve NFC’s claims.
Persuaded, Judge Daniels denied NFC’s motion to remand, ruled
abstention unnecessary, and transferred NFC’s claims to the Southern Dis-
trict of Texas. Over NFC’s objection, the Texas district court, Judge Keith
Ellison, left pretrial matters to the bankruptcy judge.
At the bankruptcy court, NFC twice amended its complaint. The
operative one states four claims against GenMa: (1) contract reformation;
(2) breach of the implied covenant of good faith and fair dealing; (3) breach
of warranty; and (4) contractual indemnification.
GenMa soon moved to dismiss that complaint for failure to state a
claim. From the bench, Chief Judge Jones said that he would grant that
motion as to the reformation and implied-covenant claims but would allow
the plaintiffs’ other claims to proceed. After discovery, GenMa sought
summary judgment on the surviving claims. NFC opposed.
In a written report and recommendation, the bankruptcy judge ad-
vised the district court to give GenMa summary judgment on the breach-of-
warranty and indemnification claims. Those claims failed, he explained, be-
cause (1) the Agreement did not breach the credit-support requirement of
GenMa’s leases and (2) the indemnity provisions in that Agreement did not
cover “litigation that NFC commenced and lost.” Chief Judge Jones again
8
Case: 21-20557 Document: 00516412657 Page: 9 Date Filed: 07/29/2022
No. 21-20557
advised dismissing NFC’s reformation and implied-covenant claims. He
attributed NFC’s losses to Natixis’s “careless[ ]” drafting of the letters of
credit and observed that the Agreement imposed on NFC “all risks [of ] a
draw” under those letters.
After the district court adopted that report and entered a take-nothing
judgment, NFC appealed. It questions our jurisdiction and insists on
abstention. Alternatively, NFC seeks to revive its claims against GenMa.
We reject NFC’s contentions and affirm the district court’s judgment.
To explain why, we turn first to jurisdiction, then to abstention, and finally to
NFC’s contract claims.
II.
Jurisdiction comes first, 6 and we review it de novo. 7 GenMa removed
this dispute to federal court, claiming it “related to” GenOn’s bankruptcy.
28 U.S.C. § 1334(b). We must decide whether that relationship existed, and
we conclude that it did. But before we explain why, we must sketch the limits
of our power to hear cases like this one.
A.
Federal district courts may hear “all civil proceedings . . . related to”
bankruptcy cases. Ibid. A proceeding relates to a bankruptcy case if “the
outcome of that proceeding could conceivably have any effect” on the
debtor’s estate. Bass v. Denny (In re Bass), 171 F.3d 1016, 1022 (5th Cir. 1999)
(quotation omitted). “Related-to jurisdiction” thus includes “any litigation”
that “could alter the debtor’s rights, liabilities, options, or freedom of action
6
Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94 (1998).
7
Edge Petrol. Operating Co v. GPR Holdings, L.L.C. (In re TXNB Internal Case),
483 F.3d 292, 298 (5th Cir. 2007).
9
Case: 21-20557 Document: 00516412657 Page: 10 Date Filed: 07/29/2022
No. 21-20557
or could influence the administration of the bankrupt estate.” Collins v.
Sidharthan (In re KSRP, Ltd.), 809 F.3d 263, 266 (5th Cir. 2015) (cleaned up).
That jurisdiction is broad, but it narrows once the debtor confirms its
reorganization plan. Confirmation dissolves the debtor’s estate and, with it,
bankruptcy jurisdiction, except “for matters pertaining to the implementa-
tion or execution of the plan.” Craig’s Stores of Tex., Inc. v. Bank of La. (In re
Craig’s Stores of Tex., Inc.), 266 F.3d 388, 390 (5th Cir. 2001).
Craig’s Stores first set forth that standard. Craig’s and the Bank of
Louisiana had a financing arrangement that persisted through Craig’s bank-
ruptcy. After reorganizing, Craig’s sued the Bank for damages that arose only
after the date its plan was confirmed. The district court vacated for want of
related-to jurisdiction. Affirming that judgment, we noted several key facts:
No “claim” was “pending between the parties as of the date of the reorgani-
zation.” Id. at 391. “[N]o facts or law deriving from the reorganization or the
plan was necessary” to Craig’s claim against the Bank. Ibid. And the case
before us had “nothing to do with any obligation created” by Craig’s reorgan-
ization plan. Ibid. The panel also dismissed Craig’s insistence that the “sta-
tus of its contract with the Bank will affect its distribution to creditors under
the plan,” because “the same could be said of any other post-confirmation
contractual relations in which Craig’s is engaged.” Ibid.We later distilled Craig’s Stores into three factors relevant to jurisdic-
tion over post-confirmation disputes. In re Enron Corp. Sec., 535 F.3d 325, 335
(5th Cir. 2008). The first factor is whether the dispute “principally dealt with
post-confirmation relations between the parties,” or instead arose from pre-
confirmation conduct. Ibid (quotation omitted). The second is whether the
claims were brought before confirmation. Ibid. The third is whether any
“facts or law deriving from the reorganization or the plan were necessary to
the claim.” Ibid. (quotation omitted and alteration adopted).
10
Case: 21-20557 Document: 00516412657 Page: 11 Date Filed: 07/29/2022
No. 21-20557
Those factors are a useful heuristic, but only the Enron court has ap-
plied them. The rest of our decisions instead ask Craig’s overarching ques-
tion: Does the dispute “pertain to the implementation or execution” of the
debtor’s reorganization plan? U.S. Brass Corp. v. Travelers Ins. Grp. (In re U.S.
Brass Corp.), 301 F.3d 296, 304 (5th Cir. 2002) (quoting Craig’s Stores,
266 F.3d at 391). 8 So it is to that question we turn.
B.
Our jurisdiction hinges on one question: Did NFC’s claims “pertain
to the implementation or execution” of GenOn’s reorganization plan, Craig’s
Stores, 266 F.3d at 391 (cleaned up), when GenMa removed NFC’s claims to
federal court? 9 We agree with GenMa: The answer is yes.
1.
This case is closer than our usual related-to fare. This is not a situation
in which a bankruptcy court seeks to enforce its orders or to block alleged
violations of a debtor’s bankruptcy-law rights. Galaz v. Katona (In re Galaz),
841 F.3d 316, 322–23 (5th Cir. 2016). Nor is this a dispute over the meaning
of provisions of the reorganization plan. U.S. Brass, 301 F.3d at 305. In those
cases, related-to jurisdiction is clear.
8
See also, e.g., Beitel v. OCA, Inc. (In re OCA, Inc.), 551 F.3d 359, 367 & n.10 (5th
Cir. 2008); Lloyd Ward & Assocs., P.C. v. Reed (In re Network Cancer Care), 197 F. App’x 284,
285 (5th Cir. 2006) (per curiam); Baker v. Baker (In re Baker), 593 F. App’x 416, 417 & n.3
(5th Cir. 2015) (per curiam); Frazin v. Haynes & Boone, L.L.P. (In re Frazin), 607 F. App’x
430, 430–31 (5th Cir. 2015) (per curiam); Galaz v. Galaz (In re Galaz), 665 F. App’x 372,
376 (5th Cir. 2016) (per curiam).
9
See Enron, 535 F.3d at 336 (“If related-to jurisdiction actually existed at the time
of removal, subsequent events cannot divest the district court of that subject-matter juris-
diction.”) (cleaned up); see also KSRP, 809 F.3d at 269 (same); Allen v. R & H Oil & Gas
Co., 63 F.3d 1326, 1335 (5th Cir. 1995) (for the general rule that later events do not defeat
removal jurisdiction).
11
Case: 21-20557 Document: 00516412657 Page: 12 Date Filed: 07/29/2022
No. 21-20557
This case instead lives at the limit of related-to jurisdiction. NFC and
GenMa are non-debtors disputing state-law claims. As NFC observes, nei-
ther party “was a debtor or creditor in the GenOn bankruptcy, and none of
the debtors were parties” to the Payment Agreement at the center of this
case.
But those facts do not foreclose related-to jurisdiction. This court has
held that related-to jurisdiction may extend to non-debtors’ state-law disputes
after the debtor confirms its plan. Feld v. Zale Corp. (In re Zale), 62 F.3d 746,
757–59 (5th Cir. 1995).
In Zale, the debtor (Zale) confirmed a plan. Later, Zale, its primary
director-and-officer insurer (Cigna), and others settled threatened suits
against the debtor’s former directors. The settlement included a third-party
release—a provision purporting to block anyone, including nonparties to the
settlement, from bringing any claims against the settling parties. And Cigna
agreed to pay Zale the full limit of its primary D&O insurance policy in
exchange for Zale’s indemnifying it against any claims regarding the settle-
ment. But that settlement rankled NUFIC, Zale’s excess D&O liability
insurer, which had been excluded from the settlement yet anticipated liability
under its excess policy. Wishing to sue Cigna on various tort and contract
theories, NUFIC appealed the settlement’s injunctive provisions.
This court framed the question as “whether the bankruptcy court had
jurisdiction over an attempt to enjoin actions between . . . NUFIC and
Cigna.” Zale, 62 F.3d at 755. The panel concluded that the bankruptcy court
lacked jurisdiction over the tort claims against Cigna. All parties to the pro-
posed claims were non-debtors, the panel explained. And if NUFIC pre-
vailed, Cigna would pay any damages from its “other assets,” not from pro-
ceeds of the debtor’s primary D&O policy. Ibid. The panel dismissed Zale’s
promised indemnity as a basis for jurisdiction because the tort claims con-
12
Case: 21-20557 Document: 00516412657 Page: 13 Date Filed: 07/29/2022
No. 21-20557
cerned only Cigna’s acts, not Zale’s, and because NUFIC could not have
brought the tort claims against Zale “even indirectly.” Id. at 756.
But the panel held that there was jurisdiction over NUFIC’s contract
claims, for two reasons: First, Zale’s reorganization plan assumed that some
money from the Cigna policy would enter Zale’s estate, an assumption that
the settlement confirmed. Id. at 758. And if successful, NUFIC’s claims—
that Cigna “improperly bypassed the limits on its policy and . . . shifted lia-
bility to NUFIC’s excess policy,” id. at 757 n.29—could change how much
Zale’s estate could recover from the Cigna policy. Second, “suits over the
Cigna policy” would “tie up the policy assets and other assets” of the litiga-
tion trust created by the reorganization plan, inhibiting Zale’s reorganization.
Id. at 759 (cleaned up).
Zale shows that we have jurisdiction here. To see why, recall the
“instrumental” settlement between GenOn, GenMa, and the Lessors. The
parties to that settlement agreed to release all claims relating to the Natixis
letters of credit. In exchange, GenMa pledged to pay off the Lessors’ debt on
the leases with a combination of cash and debt. The cash would come from
GenMa’s cash reserves, which, under the settlement, could not drop below
$25 million after the payoff. After the parties forged that tentative frame-
work, the bankruptcy court enshrined it in the plan, finding that the proposal,
if effected, would thwart “complex and protracted” litigation that could
“derail the Debtors’ reorganization efforts.” When GenMa removed NFC’s
claims to the Southern District of New York, that settlement was not yet final,
and NFC had by then asserted more than $34 million in damages against
GenMa.
That brings us to the link between Zale and this case: In Zale, the
dispute between NUFIC and Cigna risked disrupting Zale’s reorganization
by threatening Zale’s recovery from and access to the Cigna policy funds.
13
Case: 21-20557 Document: 00516412657 Page: 14 Date Filed: 07/29/2022
No. 21-20557
Here, NFC’s claims risked the same disruptions: GenMa had pledged to pay
the Lessors lots of money and to keep specified cash reserves as part of a
global settlement between several parties to GenOn’s restructuring. By
threatening GenMa’s ability to fulfill those commitments, NFC’s claims
pertained to “the implementation and execution” of that crucial settlement,
which was part of GenOn’s plan. Craig’s Stores, 266 F.3d at 390. So we have
related-to jurisdiction. 28 U.S.C. § 1334(b).
Though Zale preceded Craig’s, it has no less force here. This court
has found post-confirmation jurisdiction over suits between non-debtors after
Craig’s Stores. Take Biloxi Casino Belle, 10 for example. There we asked
whether a title-insurance policy covered a security interest in a debtor’s ca-
sino boat. Id. at 497. That clash “pertain[ed] to the implementation or exe-
cution of the [bankruptcy] plan,” we explained, because one of the parties to
that suit had assigned its recovery to a trust created by the debtor’s plan “for
the benefit of unsecured creditors.” Id. at 496 n.4. 11 So both before and after
Craig’s Stores, this court has accepted that related-to jurisdiction can exist
over state-law disputes between non-debtors.
Exercising jurisdiction is consistent with Craig’s Stores itself. Craig’s
Stores disclaimed jurisdiction over “post-confirmation claims based on post-
confirmation activities.” Enron, 535 F.3d at 325. The suit in Craig’s Stores,
266 F.3d at 389, was brought eighteen months after confirmation—apparently
well after the debtor had finished reorganizing. But NFC’s claims concern
10
First Am. Title Ins. Co. v. First Tr. Nat’l Ass’n (In re Biloxi Casino Belle), 368 F.3d
491 (5th Cir. 2004).
11
Had it been heard today, Biloxi Casino Belle would have applied the pre-confirma-
tion test for related-to jurisdiction because the suit began before—but continued after—the
debtor confirmed its plan. Id. at 495–96. But we decided Biloxi Casino Belle in 2004, four
years before Enron clarified that we assess the scope of related-to jurisdiction at the time of
removal. Enron, 535 F.3d at 336; see also KSRP, 809 F.3d at 269 (same).
14
Case: 21-20557 Document: 00516412657 Page: 15 Date Filed: 07/29/2022
No. 21-20557
pre-confirmation activities, and at the time of removal GenOn had not “fully
consummated” its plan. U.S. Brass, 301 F.3d at 305. Much work remained
to effect GenOn’s plan, prompting the bankruptcy court to express “extreme
concerns” that the plan would stall short of “the finish line.”
NFC’s claims threatened to destabilize the fragile consensus around a
settlement crucial to the success of GenOn’s plan. There thus was no ques-
tion that, when GenMa removed, those claims might hinder the plan’s “com-
pletion.” Ibid. Such “attenuated, hypothetical effects of third-party litigation
can give rise to related-to bankruptcy jurisdiction.” Fire Eagle, L.L.C. v. Bis-
choff (In re Spillman Dev. Grp.), 710 F.3d 299, 305 (5th Cir. 2013). Related-to
jurisdiction existed at removal.
2.
NFC objects that there is no evidence to support GenMa’s assertion
of related-to jurisdiction. It also warns that our holding will extend related-to
jurisdiction to every controversy under the sun. We disagree on both counts.
a.
We start with the evidentiary objections. The first is that GenMa
“offered no evidence that NFC’s lawsuit” could affect GenOn’s plan. The
second is that there is contrary evidence: GenMa’s notice of removal related
that GenOn expected to complete its bankruptcy proceedings soon. And that
notice did not say that GenOn could not reorganize unless NFC’s claims were
resolved. NFC also points out that GenOn ultimately exited bankruptcy.
NFC relies on those facts to show that “[n]othing in the plan turned on the
results of this case.”
We dismiss NFC’s first objection. Though neither the bankruptcy
15
Case: 21-20557 Document: 00516412657 Page: 16 Date Filed: 07/29/2022
No. 21-20557
court nor the Southern District of New York made detailed findings of fact,12
the record shows that NFC’s claims imperiled GenMa’s ability to perform
the settlement.
NFC does not dispute the terms of the proposed settlement, which
required GenMa to maintain cash reserves and to pay off the Lessors’ debts
on the leases. Nor could NFC contest that the framework for that settlement
became part of GenOn’s plan, that the bankruptcy court deemed that settle-
ment essential to GenOn’s restructuring, or that NFC had asserted tens of
millions in damages against GenMa at the time of removal. Those damages
could have threatened GenMa’s ability to perform the settlement: GenMa’s
financial filings had expressed “substantial doubt” of its own ability to avoid
bankruptcy as late as December 2017, when the settlement framework
became part of the plan. We thus do not doubt that “this proceeding” could
have affected “compliance with or completion of” GenOn’s plan. U.S. Brass,
301 F.3d at 305.
NFC’s second objection—that the evidence belies the relatedness of
its claims—is unavailing. It is true that GenMa’s removal notice did not say
that NFC’s claims would torpedo GenOn’s reorganization or that GenOn’s
plan could not progress unless those claims were resolved. But GenMa did
not have to say that. To meet the test for post-confirmation jurisdiction,
GenMa just had to show that the dispute “pertain[ed] to the plan’s implemen-
tation or execution.” Ibid. (emphasis added). A threat to the plan, even if
contingent, supported removal. The fact that GenOn eventually exited bank-
ruptcy does not change that conclusion: “If related-to jurisdiction actually
12
The federal rules do not require factual findings on a motion for remand. See
Fed. R. Civ. P. 52(a)(3) (“The court is not required to state findings or conclusions
when ruling on a motion under Rule 12 or 56 or, unless these rules provide otherwise, on
any other motion.”).
16
Case: 21-20557 Document: 00516412657 Page: 17 Date Filed: 07/29/2022
No. 21-20557
existed at the time of removal,” later events “cannot divest the district court
of that subject-matter jurisdiction.” Enron, 535 F.3d at 336 (cleaned up).
NFC’s evidentiary objections are unpersuasive.
b.
NFC also warns that ruling for GenMa would swell related-to juris-
diction well beyond its proper limits. That contention deserves careful
attention.
In its briefing, GenMa asserts other reasons for jurisdiction besides
the settlement enshrined in GenOn’s plan. GenMa points out, for example,
that NFC’s claims reduce GenMa’s value and thus “diminish[ ] GenOn’s
enterprise value.” And by doing that, GenMa continues, NFC’s claims
would reduce the “collateral available [to GenOn] to obtain . . . exit finan-
cing” in the reorganization. But we agree with NFC: “If such an indirect
impact” on the debtor “could establish jurisdiction, every lawsuit against any
debtor’s subsidiary (direct or indirect) would be swept into bankruptcy
court—indeed, any litigation affecting any debtor’s assets would be ʻrelated
to’ the bankruptcy.” But that is not our rule. 13
Instead, our rule is that post-confirmation jurisdiction is proper only
13
See, e.g., Zale, 62 F.3d at 755–56 (an indemnification agreement between a debtor
and its insurer could not sustain related-to jurisdiction over otherwise unrelated tort claims
against that insurer); Craig’s Stores, 266 F.3d at 391 (“[W]hile Craig’s insists that the status
of its contract with the Bank will affect its distribution to creditors under the plan, the same
could be said of any other post-confirmation contractual relations in which Craig’s is en-
gaged.”); cf. Frazin, 607 F. App’x at 430–31 (finding related-to jurisdiction over a suit by the
debtor against his former attorneys because the underlying case, out of which the suit
against the attorneys arose, “was an asset of the debtor” and because the dispute over the
fees owed the lawyers “could have . . . affected” “payment to creditors”); Biloxi Casino
Belle, 368 F.3d at 496 n.4 (finding post-confirmation related-to jurisdiction because one
party had assigned any recovery from the suit to a liquidating trust created by the plan).
17
Case: 21-20557 Document: 00516412657 Page: 18 Date Filed: 07/29/2022
No. 21-20557
where the dispute pertains to the plan’s implementation or execution. Few
disputes between non-debtors qualify. Neither “judicial economy” nor
“[s]hared facts between the third-party action” and a bankruptcy conflict can
alone sustain that jurisdiction. Zale, 62 F.3d at 753. To fall within our post-
confirmation jurisdiction, a dispute typically must implicate a specific plan’s
provision 14 or the parties’ bankruptcy-law rights or responsibilities. 15 More-
over, we have often found jurisdiction only after observing that the parties’
post-confirmation dispute “principally dealt with [pre]-confirmation rela-
tions between the parties,” thus satisfying the first factor from Craig’s Stores,
266 F.3d at 391. E.g., Galaz, 841 F.3d at 322; Enron, 535 F.3d at 335–36.
Those strictures are many and meaningful, but none precludes our
power here. The text and structure of Congress’s jurisdictional grant confirm
that conclusion. See 28 U.S.C. § 1334(b). Its “abstention provisions” suggest
that we may not unduly narrow our jurisdictional gaze. Wood v. Wood (In re
Wood), 825 F.2d 90, 93 (5th Cir. 1987). “Congress wisely chose a broad ju-
risdictional grant and . . . broad abstention doctrine[s] over a narrower juris-
dictional grant so that the district court could determine in each individual
case whether hearing it would promote or impair efficient and fair adjudica-
tion of bankruptcy cases.” 16
14
See Highland Cap. Mgmt., L.P. v. Chesapeake Energy Corp. (In re Seven Seas Petrol.,
Inc.), 522 F.3d 575, 589–90 (5th Cir. 2008) (denying jurisdiction over non-debtors’ claims
because the only asserted basis for jurisdiction, a release provision in the plan, covered only
claims by the debtor, not by third parties).
15
See, e.g., Galaz, 841 F.3d at 322–23 (“[ J]urisdiction remains in the bankruptcy
court, even after a bankruptcy case is closed, to assure that the rights afforded to a debtor
by the Bankruptcy Code are fully vindicated.” (quotation omitted)); U.S. Brass, 301 F.3d
at 305 ( Jurisdiction exists to resolve disputes where the outcome “could affect the parties’
post-confirmation rights and responsibilities.”).
16
Kelly v. Nodine (In re Salem Mortg. Co.), 783 F.2d 626, 635 (6th Cir. 1986); see also
Wood, 825 F.2d at 93 (“The abstention provisions of the Act demonstrate the intent of
18
Case: 21-20557 Document: 00516412657 Page: 19 Date Filed: 07/29/2022
No. 21-20557
Jurisdiction existed, and removal was proper.
III.
Having established the district court’s jurisdiction, we now must
decide whether the court had to abstain from its exercise. We agree with the
district court: Section 1334(c)(2) did not require abstention.
Section 1334(c)(2) requires courts with bankruptcy jurisdiction to ab-
stain from hearing “State law claim[s] or State law cause[s] of action” where
four conditions are met: First, “an action” “with respect to” those state-law
claims “could not have been commenced” in federal court absent bankruptcy
jurisdiction. Ibid. Second, the claims only relate to a bankruptcy case; that is,
they are not core bankruptcy claims. Ibid. Third, an action regarding the
claims “has been commenced in state court” and, fourth, such an action can
be “timely adjudicated” there. TXNB, 483 F.3d at 300 (quoting Schuster v.
Mims (In re Rupp & Bowman), 109 F.3d 237, 239 (5th Cir. 1997)). The statute
requires abstention only if all four conditions are met. We review for abuse
of discretion a district court’s refusal to abstain. Id. at 299.
No one disputes that the second and third requisites are met: NFC’s
contract claims “relate [only] to” GenOn’s bankruptcy case, and those claims
began in state court before GenMa removed them. The parties dispute only
the first and fourth requisites: whether NFC’s claims “could not have been
commenced” in federal court absent bankruptcy jurisdiction, and whether a
state court could have “timely adjudicated” those claims. 28 U.S.C.
§ 1334(c)(2). But we need only address the first requisite here. It was not
met, so we may proceed to the merits.
Congress that concerns of comity and judicial convenience should be met, not by rigid lim-
itations on the jurisdiction of federal courts, but by the discretionary exercise of abstention
when appropriate in a particular case.”) (citing Salem Mortg., 783 F.2d at 635).
19
Case: 21-20557 Document: 00516412657 Page: 20 Date Filed: 07/29/2022
No. 21-20557
Mandatory abstention applies only if “an action” “with respect to”
the claims that are “related to” the bankruptcy proceeding “could not have
been commenced” in federal court “absent” bankruptcy jurisdiction. Ibid.That requisite is easy to apply where an independent basis for federal juris-
diction exists from the start. See, e.g., TXNB, 483 F.3d at 299–301. But none
then existed here.
GenMa could not have removed NFC’s claims to federal court on any
ground other than related-to bankruptcy jurisdiction. That’s because “fed-
eral diversity-of-citizenship jurisdiction ʻdepends on the state of things at the
time of the action brought.’” 17 Our parties are diverse 18 and contest tens of
millions of dollars. But when GenMa removed NFC’s claims, there were
parties in NFC’s state-court suit—namely, the indenture trustee and the
Lessors—whose presence precluded diversity jurisdiction. This court can
forgive a want of diversity at removal in cases meeting the requisites of diver-
sity jurisdiction when judgment was entered. Caterpillar Inc. v. Lewis,
519 U.S. 61, 75 (1996). Yet that mercy is limited to cases “tried on the
merits,” which do not include cases resolved on motions for dismissal or
summary judgment. Camsoft Data Sys., Inc. v. S. Elecs. Supply, Inc., 756 F.3d
327, 337 (5th Cir. 2014). NFC says that principle ends this case.
Not so fast. Though it’s true that diversity jurisdiction did not support
removal of NFC’s claims, that’s not what Section 1334(c)(2) asks. That stat-
ute commands abstention only where “an action” regarding the claims before
the federal district court “could not have been commenced” in a federal court
absent bankruptcy jurisdiction. In other words, federal courts must abstain
17
Ashford v. Aeroframe Servs., L.L.C., 907 F.3d 385, 386 (5th Cir. 2018) (quoting
Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570–71 (2004)).
18
NFC is a “New York corporation with its principal place of business in New
York.” GenMa is a Delaware LLC.
20
Case: 21-20557 Document: 00516412657 Page: 21 Date Filed: 07/29/2022
No. 21-20557
only if “the claim” in the federal court “has no independent basis for federal
jurisdiction.” TXNB, 483 F.3d at 300 (emphasis added and alteration
adopted).
The statute thus states a two-part inquiry. The first question is which
“State law claim[s] or State law cause[s] of action” were properly before the
district court. 28 U.S.C. § 1334(c)(2). Here, only NFC’s claims against
GenMa were before that court. The claims against the nondiverse parties
stayed in state court, thanks to the bankruptcy removal statute. Unlike the
general removal statute, which allows a defendant to remove only a “civil
action,” § 1446(a) (emphasis added), the bankruptcy removal statute permits
removal of “any claim or cause of action in a civil action” to the federal court
in that district, § 1452(a) (emphasis added). That’s what GenMa did. It re-
moved under Section 1452, bringing only the state-law claims against it to the
Southern District of New York.
The statute next asks whether “an action” regarding those claims—
the claims before the federal court—“could . . . have been commenced” in
federal court absent related-to jurisdiction. § 1334(c)(2). Here, the answer
is yes. Diversity jurisdiction would exist over those claims, see § 1332, be-
cause the parties dispute more than $75,000 and because NFC and GenMa
are citizens of different states. So abstention was not required.
NFC says that that reading of the statute is “baseless.” According to
NFC, the statute’s “commencement requirements” address “the action filed
in state court,” not the “embedded ‘State-law claims’ ‘related to’ the bank-
ruptcy.” (Alterations adopted) (quoting § 1334(c)(2)). And because NFC’s
state-court action “indisputably involved nondiverse parties,” NFC deems
this abstention factor satisfied.
NFC misreads the statute. Here is what the full subsection says:
Upon timely motion of a party in a proceeding based upon
21
Case: 21-20557 Document: 00516412657 Page: 22 Date Filed: 07/29/2022
No. 21-20557
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 juris-
diction 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.
§ 1334(c)(2) (emphasis added).
That text does not permit NFC’s reading. The phrase “with respect
to which” links “an action”—the one that interests us—to the “claim[s]” and
“cause[s] of action” on which the federal “proceeding” is “based.” And
when the statute finally mentions the “action . . . commenced . . . in a State
forum,” it refers to that action as “an action”—not as “that action,” “such
action,” or other words suggesting that the action at the statute’s end (the one
“commenced in a State forum”) is the same action mentioned at its start (the
one that “could not have been commenced” in federal court).
Read plainly, the statute asks whether an action―any action― with re-
spect to NFC’s state-law claims against GenMa could have been commenced
in a federal court. Ibid. Because the answer is yes, abstention was not re-
quired.
Besides its erroneous reading of the statute, NFC invokes two out-of-
circuit district court cases 19 for the notion that GenMa’s failure “to list diver-
sity jurisdiction in its notice of removal” bars GenMa from citing diversity
jurisdiction as a reason not to abstain.
That reading is wrong. It is true that a notice of removal must contain
19
Viz. CityView Towne Crossing Shopping Ctr. Fort Worth Tx. L.P. v. Aissa Med. Res.
L.P., 474 F. Supp. 3d 586, 598–600 (W.D.N.Y. 2020); Tailored Fund Cap LLC v. RWDY,
Inc., No. 5:20-cv-762, 2020 WL 6343307, at *7 (N.D.N.Y. Oct. 29, 2020).
22
Case: 21-20557 Document: 00516412657 Page: 23 Date Filed: 07/29/2022
No. 21-20557
“a short and plain statement of the grounds for removal.” 28 U.S.C.
§ 1446(a). But a removal notice concerns the basis for our jurisdiction. Man-
datory abstention does not. It is not jurisdictional. It is forfeitable, and it
cannot apply absent a “timely motion” of the party wishing to avoid the fed-
eral forum. § 1334(c)(2); see also VSP Labs, Inc. v. Hillair Cap. Invs., L.P. (In
re PFO Global, Inc.), 26 F.4th 245, 254 (5th Cir. 2022). GenMa thus had no
reason to address abstention in its removal notice before NFC asked for it.
“We do not require a litigant to anticipatorily rebut all potential arguments
his adversary may raise.” Hoyt v. Lane Constr. Corp., 927 F.3d 287, 296 n.2
(5th Cir. 2019).
We find no abuse of discretion. Abstention was not required.
IV.
At last, we turn to the merits. NFC lost all four of its claims before the
bankruptcy court. It then lost at the district court, which, taking the bank-
ruptcy court’s advice, disposed of all claims and entered a take-nothing judg-
ment against NFC. NFC now appeals the Rule 12(b)(6) dismissal of its im-
plied-covenant and reformation claims and the summary judgments dismiss-
ing its claims for breach of warranty and indemnification.
NFC cannot prevail, so we affirm the district court in all respects.
A.
We begin with the summary judgments. The district court granted
those judgments to GenMa on NFC’s breach-of-warranty and indemnifica-
tion claims. NFC asks us to reverse both judgments.
Summary judgment is proper if there’s no genuine dispute over the
meaning of the parties’ contract, as when that contract is unambiguous.
23
Case: 21-20557 Document: 00516412657 Page: 24 Date Filed: 07/29/2022
No. 21-20557
Tekelec, Inc. v. Verint Sys., Inc., 708 F.3d 658, 664 (5th Cir. 2013). 20 So we may
affirm the summary judgments if the relevant contracts are clear that GenMa
breached no warranty and owes no indemnity. And those contracts are clear
as day.
1.
Here is the breach-of-warranty theory: By paying NFC to procure let-
ters of credit from Natixis, GenMa created a lien on its assets, breaking two
promises to the Lessors. 21 And that deal breached GenMa’s warranty to NFC
not to break those promises. 22 That breach of warranty was a default under
the parties’ Payment Agreement.
That theory rests on the premise that GenMa’s paying NFC created a
“Lien”—namely, a proscribed “deposit arrangement.” If the payment ef-
fected a lien on GenMa’s assets, NFC posits, then GenMa broke its promises
to the Lessors not to do that and to maintain uncollateralized credit support.
But that premise is wrong.
GenMa’s leases define “Lien” as “any security interest, security
deed, mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), lease, title retention arrange-
ment, charge against or interest in property . . . to secure payment of a debt
20
See also W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 641–42 (N.Y. 1990)
(same).
21
GenMa promised the Lessors that it would not “create, incur, . . . or otherwise
cause or suffer to exist . . . any Liens on its . . . properties or assets.” Likewise, GenMa
pledged to “[m]aintain . . . Qualifying Credit Support,” which, among other requisites,
could not be secured by a lien on its assets.
22
GenMa warranted to NFC that their transaction and the Payment Agreement
“does not and will not violate or conflict with any contractual restriction . . . on or affecting
it or any of its assets, including” any lease agreement. GenMa also promised that NFC’s
collateralization of the letters of credit “will not violate any” lease agreement.
24
Case: 21-20557 Document: 00516412657 Page: 25 Date Filed: 07/29/2022
No. 21-20557
or performance of an obligation.” That definition is prolix and redundant, as
only a lawyer could love. But it is simpler than it appears.
Each of the proscribed arrangements conveys to a creditor a condi-
tional interest in the debtor’s property to secure an obligation. In other
words, each resembles a conventional lien. 23
A good example is the classic pledge: Needing a loan, a beggar pawns
his watch. The pawnbroker gives the loan but keeps the watch. The watch
still belongs to the beggar. If he repays the loan, his watch is returned. If he
does not repay, the pawnbroker may sell the watch to cover the debt—but he
owes the beggar any surplus proceeds. See U.C.C. § 9-615(d)(1). It is, after
all, his watch.
Or consider a common deposit arrangement: To rent an apartment, a
tenant deposits $1,000 with his landlord at the start of the lease. If, at the end
of the lease, the tenant has kept the place tidy, the landlord must return the
deposit. But if the tenant puts holes in the walls, stops paying rent, or other-
wise breaches the lease, the landlord may apply the deposit “to cover [her]
losses or damages.” 24
The Payment Agreement is nothing like those arrangements: GenMa
unconditionally conveyed the $130 million payment to NFC, and that pay-
ment did not secure any duty of GenMa to NFC or to anyone else.
GenMa surrendered all interest in its payment to NFC. On that point,
23
See, e.g., Lien, Black’s Law Dictionary (11th ed. 2019) (A lien is a “legal
right or interest that a creditor has in another’s property, lasting usu[ally] until a debt or
duty that it secures is satisfied.”); Pledge, Black’s Law Dictionary (11th ed. 2019)
(defining pledge as, among other things, “[t]he act of providing something as security for a
debt or obligation,” as well as “[a] bailment or other deposit of personal property to a cred-
itor as security for a debt or obligation”).
24
5 Thompson on Real Property § 40.05(a)(2) (3d ed. 2022).
25
Case: 21-20557 Document: 00516412657 Page: 26 Date Filed: 07/29/2022
No. 21-20557
the Agreement could not be clearer. It expressly and emphatically disclaims
any interest of GenMa in the funds it paid NFC. The Agreement says those
funds “are and shall become the property of NFC.” It also says that “[o]nce
[those funds are] paid, [GenMa] will have no interest, claim, reversionary or re-
sidual interest” in them. (Emphasis added.) The Agreement commits
GenMa “to irrevocably pay in full to NFC the Payment Amount . . . to procure
[NFC’s] services.” (Emphasis added.) The parties even solemnize that “the
Payment Amount has been indefeasibly paid by [GenMa] to NFC,” that NFC
“bears the risk of loss on the Payment Amount,” and that NFC can keep “any
returns, interest, gains or other earnings that accrue on the Payment
Amount.” For its payment to effect a lien on its assets, GenMa had to retain
some ongoing interest in the funds or some right to their return. But the Pay-
ment Agreement repudiated all such rights—not once, not twice, but
throughout.
But even if GenMa had retained some theoretical interest in its pay-
ment to NFC, that payment secured no duty or obligation of GenMa to NFC
or to anyone else. Paying NFC $130 million and the letter-of-credit fee was
GenMa’s only “obligation” under the Agreement. In exchange, NFC prom-
ised to acquire letters of credit and, if they went undrawn, to pay rent to the
Lessors.
Those duties fell squarely and only on NFC. “NFC shall be solely
responsible” for satisfying any draws on the letters of credit, the Agreement
states, and “neither [GenMa] nor any Affiliate thereof shall have any liability
for, and no claim or recourse against [GenMa] or any Affiliate thereof will
exist with respect to, any reimbursement obligation” arising from such draws.
That arrangement looks nothing like a lien, where specific assets are set aside
to secure some obligation of the debtor. See, e.g., Biloxi Casino Belle, 368 F.3d
at 493–94.
26
Case: 21-20557 Document: 00516412657 Page: 27 Date Filed: 07/29/2022
No. 21-20557
Because GenMa gave up any interest in the $130 million paid to NFC,
and because those funds did not secure any of GenMa’s debts or obligations,
the payment effected “no lien or other charge . . . against GenMa’s assets.”
And absent a lien on its own assets, GenMa did not breach its warranty that
the Agreement complied with the leases.
Against those points, NFC first urges that affirmance would ignore the
true “economic substance” of the parties’ transaction and instead credit the
contract’s “artificial labeling.” (Quotation omitted.) According to NFC,
GenMa’s payment was a “clear” deposit arrangement.
Not so. Though courts should take care not to credit nomenclature
over reality, here it is NFC pressing unreality. Any inquiry into economic
substance must rest on what the parties agreed, see Int’l Trade Admin. v. Rens-
selaer Polytechnic Inst., 936 F.2d 744, 749 (2d Cir. 1991), and GenMa dis-
claimed any right to the funds it paid NFC. Nothing in the contract supports
NFC’s insinuation that those statements were a sham. GenMa paid NFC
$130 million for its unsecured promise to provide credit support or to pay
rent—nothing more.
It makes no difference that NFC agreed to procure letters of credit to
satisfy GenMa’s credit-support obligations and to apply any unused funds to
GenMa’s rent. Those promises benefited GenMa; that is why the parties
contracted. What’s key is that neither promise preserved for GenMa any in-
terest in the funds it paid NFC. To the contrary, NFC’s promises are what
those funds were irrevocably conveyed to purchase. There was no lien.
The endpoint of NFC’s theory reveals its illogic. At bottom, NFC
asks this court to conclude that the Agreement effected a lien—despite all
textual evidence to the contrary—because GenMa exchanged $130 million
27
Case: 21-20557 Document: 00516412657 Page: 28 Date Filed: 07/29/2022
No. 21-20557
for promises of equal value. 25 NFC stresses that GenMa’s payment equaled
the value that NFC had committed to provide between the letters of credit
and the rent payments, and that the Agreement “dictated” the terms of those
return promises. But those facts also would describe any purchase. NFC’s
theory would transform every purchase of any promise, however mundane,
into a secured transaction. That is not the law. Paying someone to stock the
office vending machine is not a secured transaction—even if the vendor
agrees to stock candies that are worth what was paid 26 and even if the candies’
size, color, and flavor are “dictated” by contract. 27
NFC also faults the district court for “ignor[ing] . . . central evidence”
that GenMa treated their transaction as a deposit and, thus, a proscribed lien.
According to NFC, GenMa accounted for the transaction as a long-term de-
posit and disclosed it as one in its SEC filings. NFC also cites testimony pur-
porting to exhume the parties’ “shared understanding” of the leases’ collat-
eralization requirement and bar on liens.
But it is blackletter law that extrinsic evidence is “inadmissible to add
to or vary the writing” when that writing is unambiguous. W.W.W. Assocs.,
566 N.E.2d at 642. NFC offers no reason for this panel to disregard that “fa-
miliar and eminently sensible proposition of law,” ibid., so we will not.
The Agreement created no lien, so we affirm the summary judgment
25
Even that framing is not quite right. GenMa did not pay NFC just $130 million
for $130 million in credit support; it also paid NFC a $1.4 million letter-of-credit fee.
26
See Appellant’s Br. at 37 (“It is no coincidence that GenMa’s $130,054,174.56
payment was the precise amount—to the penny—thought necessary to collateralize the
Natixis letters of credit.”).
27
See Appellant’s Br. at 45 (“The courts’ myopic focus ignored the rest of the con-
tract, which effectively revested GenMa with the rights to those funds. As detailed above,
the agreement separately dictated the appropriation of those funds.”) (cleaned up).
28
Case: 21-20557 Document: 00516412657 Page: 29 Date Filed: 07/29/2022
No. 21-20557
for GenMa on this claim.
2.
NFC next asserts that the Agreement requires GenMa to cover NFC’s
costs in this suit and in various state-court actions between NFC and the Les-
sors. We disagree and affirm the judgment for GenMa on that claim.
NFC claims two indemnities in the Agreement. The first does not
apply. It is an indemnity for costs incurred to enforce NFC’s rights under the
Agreement. But it kicks in only if GenMa defaults, and the only asserted de-
fault is GenMa’s breach of warranty. GenMa breached no warranty, so it need
not cover NFC’s costs in this suit.
The second indemnity protects NFC and Natixis against all losses “in
connection with any . . . judicial proceeding . . . brought or threatened (by any
third party, by [GenMa] or any Affiliate [of GenMa]) arising out of or relating
in any respect to this Agreement or any Letter of Credit.” Though broad,
that indemnity does not cover “any reimbursement obligation to [Natixis] or
any other Person in respect of any” lease payments or disbursements under
the letters of credit.
NFC says that second indemnity covers its losses in two sets of cases.
The first comprises the sundry suits by the Lessors against Natixis for failing
to honor their draws on the Natixis letters of credit. The second is this suit,
as it proceeded in state court against the Lessors and the indenture trustee.
NFC and Natixis lost both. 28
28
The state district court dismissed the claims of NFC and Natixis and gave judg-
ment to the Lessors on their claims. The New York Appellate Division affirmed, Natixis
Funding Corp. v. GenOn Mid-Atl., LLC, 121 N.Y.S.3d 34, 35 (N.Y. App. Div. 2020), and the
New York Court of Appeals denied leave to appeal, Natixis Funding Corp. v. GenOn Mid-
Atl., LLC, 152 N.E.3d 161 (N.Y. 2020) (Mem.).
29
Case: 21-20557 Document: 00516412657 Page: 30 Date Filed: 07/29/2022
No. 21-20557
The Agreement’s indemnity does not cover NFC’s losses from the
suits against Natixis. The indemnity bars “any reimbursement obligation to
[Natixis] or any other Person in respect of any [letter-of-credit] Disburse-
ment.” (Emphasis added.) The Lessors sued to force Natixis to honor the
draws on the letters of credit. When Natixis honors a draw, the Payment
Agreement requires NFC to reimburse it. And that reimbursement, NFC
candidly admits, is the only loss it suffered. “Although the [Lessors] sued
Natixis,” NFC explains in its opening brief, “NFC incurred losses from those
suits via its reimbursement obligations under the [Payment A]greement.” (Em-
phasis added.) That point is conclusive. The suits concerned Natixis’s dis-
bursements under the letters of credit, and NFC’s costs arose from its duty,
under the Agreement, to reimburse Natixis for those draws. 29 The indemnity
does not cover that.
Nor does it cover NFC’s costs in its suit against the Lessors and the
indenture trustee. The indemnity covers all losses incurred “in connection
with . . . judicial proceeding[s]”—but only those “brought or threatened [ ]by
any third party.” Suits that NFC commenced are not “brought or threat-
ened” “by a third party,” so they are excluded from the indemnity.
NFC asserts that it sued the Lessors “in response to the[ir] litigation
threats.” But the indemnity does not cover suits responding to proceedings
“brought or threatened” by third parties; it covers only those proceedings.
That plain textual reading makes good sense: Indemnities exist to “protect
29
At points, NFC asserts an indemnity for “judgments, damages, out-of-pocket
costs, and expenses”—not just the cost of draws—resulting from the Lessors’ suits.
GenMa seems to fear that those claims would trigger the indemnity. But NFC’s assertion
makes no difference. The indemnity provision precludes “any reimbursement obligation
. . . in respect of any” letter-of-credit disbursement or lease payment. (Emphasis added.)
So even if NFC had agreed, beyond the Payment Agreement, to reimburse Natixis’s other
costs, the indemnity would bar NFC’s recovery from GenMa.
30
Case: 21-20557 Document: 00516412657 Page: 31 Date Filed: 07/29/2022
No. 21-20557
or preserve against . . . loss.”30 They generally are not designed to finance
offensive litigation. And when they are put to that purpose, the parties leave
no doubt—as with the first indemnity provision we discussed, which, as ex-
plained, does not apply here. 31
We affirm the summary judgment on the indemnification claim.
B.
NFC also appeals the Rule 12(b)(6) dismissal of its implied-covenant
and reformation claims. Because those claims come to us on a motion to
dismiss, we confine our review to the pleadings, their attachments, and any
documents the pleadings mention that are central to the plaintiff’s claims.
Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498–99 (5th Cir. 2000).
The pleading standard is familiar:
To withstand a motion to dismiss under Rule 12(b)(6), a
complaint must present enough facts to state a plausible claim
to relief. A plaintiff need not provide exhaustive detail to avoid
dismissal, but the pleaded facts must allow a reasonable infer-
ence that the plaintiff should prevail. Facts that only conceivably
give rise to relief don’t suffice. Thus, though we generally take
as true what a complaint alleges, we do not credit a complaint’s
legal conclusions or threadbare recitals of the elements of a
cause of action.
Mandawala v. Ne. Baptist Hosp., 16 F.4th 1144, 1150 (5th Cir. 2021) (cleaned
up). Our review is de novo. Ibid.30
John F. Olson, Director & Officer Liability: Indemnifica-
tion & Insurance § 4:1, Westlaw (database updated Dec. 2021).
31
“Upon the occurrence of a Company Event of Default, [GenMa] shall be liable
to NFC for the reasonable and documented out-of-pocket costs and expenses of one outside
law firm counsel to NFC in connection with the enforcement of NFC’s rights under this
Agreement.”
31
Case: 21-20557 Document: 00516412657 Page: 32 Date Filed: 07/29/2022
No. 21-20557
Applying that standard and the contract law of New York, we affirm
both dismissals.
1.
NFC first contends that GenMa breached the implied covenant of
good faith and fair dealing. Even taking as true NFC’s well-pleaded factual
assertions, as we must, NFC does not come close to stating that claim.
By default, every contract includes a covenant of good faith and fair
dealing. Dalton v. Educ. Testing Serv., 663 N.E.2d 289, 291 (N.Y. 1995). That
covenant bars “opportunistic behavior” in the gaps of the contract; a classic
example is an insurer’s “paying a person who has sued the insured to convert
his claim to one not covered by the insurance policy.” In re Ocwen Loan Serv.,
L.L.C. Mort. Servicing Litig., 491 F.3d 638, 645–46 (7th Cir. 2007) (Posner, J.).
Contract law forbids such conduct, even if the contract’s text does not ad-
dress or anticipate it, because it “destroy[s] or injur[es] the right of the other
party to receive the fruits of the contract.” Dalton, 663 N.E.2d at 291 (quo-
tation omitted).
Those descriptions of the implied covenant belie its strictures. Courts
may not read into a contract a covenant that doesn’t follow inexorably from
its terms. See id. at 292. 32 Nor may they rewrite a contract to include terms
that a party, with the benefit of hindsight, would have or should have in-
cluded. Instead, courts may imply only those promises that “a reasonable
person in the position of the promisee would be justified in understanding
were included” in the bargain from the start. Dalton, 663 N.E.2d at 291 (em-
phasis added and quotation omitted).
32
See also Murphy v. Am. Home Prods. Corp., 448 N.E.2d 86, 91 (N.Y. 1983) (“No
obligation can be implied . . . [that] would be inconsistent with other terms of the contrac-
tual relationship.”).
32
Case: 21-20557 Document: 00516412657 Page: 33 Date Filed: 07/29/2022
No. 21-20557
According to NFC, the implied covenant here is an implied promise
by GenMa not to miss any rent payments to the Lessors. GenMa broke that
promise, NFC says, by refusing to pay its rent despite having the funds to do
so. That caused the Lessors to draw on Natixis’s letters of credit, which, in
turn, deprived NFC of “the primary benefit of [the] bargain”—the chance to
earn interest on GenMa’s $130 million payment.
We agree with the bankruptcy court: That claim is “baseless.” As the
bankruptcy court explained, the “entire purpose” of a credit-support ar-
rangement like this one is to “insure” the beneficiaries “against the risk” of
default. The Lessors insisted on letters of credit so that they could draw on
them if GenMa didn’t pay its rent. It defies logic to say that the risk of im-
mediate default was “squarely at odds with the parties’ agreement and shared
expectations,” where NFC agreed to insure the Lessors against any default.
NFC’s desired covenant also contradicts the Agreement’s plain terms.
NFC agreed to bear “sole[ ] responsib[ility] for satisfying any reimbursement
obligation” and to release GenMa from “any liability for . . . [or] with respect
to” any such obligation. NFC also agreed to “bear[ ] the risk of loss on the
Payment Amount” and to “provide cash collateral” to back Natixis’s letters
of credit. A covenant not to miss rent thus would create liability for GenMa
that the Agreement assigned only to NFC. Yet, under New York law, “no
obligation can be implied” that would conflict with the contract’s terms. Dal-
ton, 663 N.E.2d at 292.
The bankruptcy court cited those reasons and one other: the con-
tract’s integration clause. That clause states that the Payment Agreement is
“the entire agreement among the parties relating to the subject matter hereof
and supersede[s] all oral statements and prior writings with respect thereto.”
NFC faults the court for relying on that clause. Though we share that
33
Case: 21-20557 Document: 00516412657 Page: 34 Date Filed: 07/29/2022
No. 21-20557
critique, 33 it does not matter. Waived or not, that duty could not require
GenMa to continue paying rent. Managing that risk was the Agreement’s
purpose, and the Agreement placed that risk—all of it—on NFC only.
We affirm the dismissal of NFC’s implied-covenant claim.
2.
We last consider NFC’s reformation claim, which could proceed only
if NFC had pleaded both a mutual mistake and the precise terms of the par-
ties’ actual agreement. Chimart Assocs. v. Paul, 489 N.E.2d 231, 234 (N.Y.
1986). We agree with the bankruptcy court: NFC did not adequately plead a
mutual mistake.
In New York, “the thrust of a reformation claim is that a writing does
not set forth the actual agreement of the parties.” Ibid. In other words, refor-
mation requires a mistake “in the drafting of the instrument, not in the mak-
ing of the contract.” 34 Thus, to survive GenMa’s motion to dismiss, NFC
must plead not just (1) a mutual mistake but also (2) “exactly what was really
agreed upon between the parties.” George Backer, 385 N.E.2d at 1066.
33
There is at least one contrary authority from a New York intermediate appellate
court. See, e.g., 1357 Tarrytown Rd. Auto, LLC v. Granite Props., LLC, 37 N.Y.S.3d 341, 343
(N.Y. App. Div. 2016). But we do not think that the New York Court of Appeals would
follow it. Because the implied covenant of good faith and fair dealing is “[i]mplicit in all
contracts,” Dalton, 663 N.E.2d at 291 (emphasis added), an integration clause confirming
that the contract is the parties’ entire agreement does not disclaim an implied covenant’s
existence. And as NFC points out, the Agreement elsewhere suggests that the parties did
not waive the implied covenant. See Payment Agmt. § 11.15 (“[GenMa] agrees that nothing
in this Agreement . . . will be deemed to create an . . . implied duty (other than any implied
duty of good faith) between any NFC Party . . . and [GenMa] . . . .”) (emphasis added).
34
27 Williston on Contracts § 70:19 (4th ed. 1993), Westlaw (database
updated May 2022); see also George Backer Mgmt. Corp. v. Acme Quilting Co., 385 N.E.2d
1062, 1066 (N.Y. 1978) (“Reformation is not granted for the purpose of alleviating a hard or
oppressive bargain, but rather to restate the intended terms of an agreement when the writ-
ing that memorializes that agreement is at variance with the intent of both parties.”).
34
Case: 21-20557 Document: 00516412657 Page: 35 Date Filed: 07/29/2022
No. 21-20557
That burden is great. NFC must overcome the “heavy presumption
that a deliberately prepared and executed written instrument manifests the
true intention of the parties.” 35
In its latest complaint, NFC observes that the parties agreed to cap its
liability at $130 million—the amount of GenMa’s payment. But because of a
“drafting error,” NFC says, the Payment Agreement omitted that cap, allow-
ing “aggregate draws” on the letters of credit to exceed $130 million. That
omission was a mutual mistake, which NFC contends this court should cor-
rect by reforming the contract to require GenMa to pay NFC another $45 mil-
lion—the amount by which the Lessors’ draws exceeded $130 million.
But the Agreement contradicts that allegation of mistake. 36 It did cap
NFC’s exposure to the letters of credit at $130 million, and it did so with the
defined term, “Excess Capacity of Lessor.” Here is how:
The “Excess Capacity” of each Lessor equaled that Lessor’s share of
GenMa’s $130 million payment minus the sum of four other amounts: (1) the
credit support that each Lessor would require for that lease period; (2) the
draws not yet paid to that Lessor; (3) the draws already paid to that Lessor;
and (4) the total amount of lease payments already made by NFC to that Les-
sor. To make things more concrete, we can suppose that a Lessor’s share of
the payment amount was $100. If that Lessor had drawn $25 on a Natixis
letter of credit in a prior period and needed $40 in credit support for the cur-
rent period, that Lessor’s Excess Capacity would equal $35. If the Lessor
35
N.Y. First Ave. CVS, Inc. v. Wellington Tower Assocs., 750 N.Y.S.2d 586, 587 (N.Y.
App. Div. 2002) (quotation omitted and alteration adopted).
36
See, e.g., Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 766–67 (5th Cir. 2016);
see also United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 377 (5th
Cir. 2004) (“If . . . an allegation is contradicted by the contents of an exhibit attached to the
pleading, then indeed the exhibit and not the allegation controls.”).
35
Case: 21-20557 Document: 00516412657 Page: 36 Date Filed: 07/29/2022
No. 21-20557
then requested another $35 in draws, its Capacity would drop to zero.
The Agreement employs the Excess Capacity term to cap what NFC
must pay to any Lessor. Any draw or lease payment to a Lessor reduces that
Lessor’s Excess Capacity. And when that Excess Capacity drops to or below
zero, “NFC shall have no obligation to cause a Letter of Credit to be issued
or to remain outstanding.” Likewise, “if a Letter of Credit is drawn, the out-
standing amount of the applicable Letter of Credit and future outstanding
amounts available to be drawn thereunder . . . shall be permanently reduced
by the amount of such draw.”
The result, the Agreement confirms, is that “no Letters of Credit will
need to be provided to any Lessor if there is not sufficient Excess Capacity
. . . available” to that Lessor. Confirming those statements, the Agreement
details exactly how much credit support each Lessor must get in each period,
absent letter-of-credit draws. And in no period does the total required credit
support exceed $130 million.
With those draw caps staring it in the face, NFC tries to conflate the
Payment Agreement with the letters of credit that its affiliate issued. The
form letter of credit attached to the Agreement did not include draw caps,
and that form, NFC says, dictated the form of the letters that Natixis issued.
And, because NFC could not have added to the letters a provision capping its
liability at $130 million, NFC contends, any mistake in those letters was mu-
tual—attributable to NFC and GenMa.
The form letter of credit did not bar Natixis from adding draw caps to
the letters it issued. But even if we were wrong about that, Natixis could have
prevented excessive draws in ways that would have complied with the form
letter of credit and the Agreement.
As NFC acknowledges, the Agreement says that NFC would never
have to backstop more than $130 million in credit support in a single period.
36
Case: 21-20557 Document: 00516412657 Page: 37 Date Filed: 07/29/2022
No. 21-20557
NFC highlights that the excessive draws occurred because the parties did not
account for “the highest possible draw . . . across multiple periods.” But noth-
ing prevented Natixis from posting letters of credit for each lease period and
each Lessor, so that it could adjust future letters to reflect that Lessor’s re-
maining capacity.
Nor did the form letter of credit preclude posting all letters for all pe-
riods at the same time on the condition that no Lessor could draw more than
its share of the $130 million. The schedule to the form letter of credit lists no
specific dollar amounts, and the form letter leaves blank its expiration date;
those spaces are left for Natixis to fill. 37 Thus, even if the form letter of credit
precludes draw caps, as NFC asserts, NFC and Natixis could have guarded
against the risk of excessive draws by issuing letters of credit period by period.
Instead, Natixis issued every letter of credit at once, exposing itself to
far more than $130 million in liability. Each letter “irrevocably authorize[d]”
the Lessor “to draw on [Natixis] . . . in any amount up to an aggregate amount
as of any date within the applicable period as set forth on Schedule I . . . .”
That schedule listed all the credit-support amounts that the Agreement re-
quired Natixis to post for that Lessor through the year 2030. And because
the letters did not cap draws across periods, Natixis posted credit support far
exceeding each Lessor’s share of the $130 million payment. All told, “Natixis
37
NFC tries to blame GenMa, asserting that it drafted the letters of credit that Na-
tixis issued. But that contention is irrelevant. For one thing, this court cannot consider that
allegation, which does not appear in NFC’s complaint, on a motion to dismiss. But even if
NFC had pleaded it, it would not matter. Whether or not GenMa took the first cut at draft-
ing the letters of credit, Natixis chose to issue them, and NFC did not object. Plus, though
the record (which we cannot consider on a motion to dismiss) shows that GenMa did help
draft the letters of credit, those drafts contemplated that the letters would expire after less
than a year and cover only one rent payment period. Had Natixis issued those letters as
drafted, it could have prevented overdraws by issuing reduced credit-support amounts in
later periods.
37
Case: 21-20557 Document: 00516412657 Page: 38 Date Filed: 07/29/2022
No. 21-20557
posted $2.2 billion in letters of credit, covering every remaining rent period
for over a decade.” (Emphasis added.)
Nothing in the Agreement or the form letter of credit compelled that
colossal, unilateral blunder. And absent fraud, which is not alleged here, a
unilateral mistake cannot support reformation. Chimart, 489 N.E.2d at 234.
NFC lobs one more argument: Had it capped the letters of credit or
issued letters only to the extent of each Lessor’s share of GenMa’s $130 mil-
lion payment, GenMa would have defaulted on its leases. That is because, in
some periods, the credit support required by the leases for a given Lessor ex-
ceeded that Lessor’s share of GenMa’s $130 million payment. For example,
in one lease period, one Lessor needed $57.5 million in credit support, but
that amount exceeded its share of GenMa’s payment by about $1.7 million.
NFC says that result would make no sense; after all, the point of the Agree-
ment was to satisfy GenMa’s lease obligations. Why should NFC bear sole
responsibility for “fail[ing] to identify and ameliorate [that] mutual mistake”?
There is some truth in that contention. The parties may have miscal-
culated the amount of credit support needed to satisfy GenMa’s lease obliga-
tions. But that mistake, mutual or not, was GenMa’s problem. Had Natixis
carefully crafted its letters of credit, NFC would not have had to pay any more
to the Lessors than GenMa had paid it, no matter how badly the parties mis-
calculated the credit support that GenMa’s leases required. We agree with
GenMa: “NFC cannot demand more money from GenMa for discovering
that it could have obtained less credit support” than the Agreement required.
Natixis made a mistake that cost NFC tens of millions of dollars. But
reformation cannot erase that unforced blunder. The dismissal was correct.
The judgment is in all respects AFFIRMED.
38