Sarnosky v. Chesapeake ( 2023 )

Case: 21-20323 Document: 00516779679 Page: 1 Date Filed: 06/08/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
June 8, 2023
No. 21-20323 Lyle W. Cayce
Clerk
In the Matter of: Chesapeake Energy Corporation
Debtor,
RDNJ Trowbridge; Robert Dunlap; Wendy Dunlap,
Appellants,
versus
Chesapeake Energy Corporation, James L. Brown; Alice
R. Brown; Suessenbach Family Limited Partnership;
James S. Suessenbach; Gina M. Suessenbach; MEC Class
Plaintiffs,
Appellees,
______________________________
Pennsylvania Proof of Claim Lessors,
Appellant,
versus
Chesapeake Energy Corporation, James L. Brown; Alice
R. Brown; Suessenbach Family Limited Partnership;
James S. Suessenbach; Gina M. Suessenbach; MEC Class
Plaintiffs,
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Appellees,
Consolidated with
_____________
No. 21-20456
_____________
In the Matter of: Chesapeake Energy Corporation
Debtor,
Lillian Sarnosky; Charlene Walters, on behalf of
Lyman Walters Family L.P.,
Appellants,
versus
Chesapeake Energy Corporation, James L. Brown; Alice
R. Brown; Suessenbach Family Limited Partnership;
James S. Suessenbach; Gina M. Suessenbach; MEC Class
Plaintiffs,
Appellees.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:21-CV-1215 c/w 4:21-CV-1218
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Before Jones, Ho, and Wilson, Circuit Judges.
Edith H. Jones, Circuit Judge:
On emerging from Chapter 11 reorganization effective February 9,
2021, Chesapeake Energy Corporation tested the limits of the bankruptcy
court’s post-confirmation jurisdiction by asking it to settle two pre-
bankruptcy purported class actions covering approximately 23,000
Pennsylvania oil and gas leases. The hitch is this: no proofs of claim were
filed for class members, and every feature of the settlements conflicts with
Chesapeake’s Plan and Disclosure Statement. Handling these forward-
looking cases within the bankruptcy court, predicated on 28 U.S.C. § 1334(a)
or (b), rather than in the court where they originated, exceeds federal
bankruptcy post-confirmation jurisdiction. 1 We VACATE and REMAND
the bankruptcy and district court judgments with instructions to dismiss.
I. Background
To understand the basis for our conclusion, it is necessary to review
carefully the claims litigated by the two classes (and the Pennsylvania
Attorney General) prior to Chesapeake’s Chapter 11 filing; the treatment of
the claims by the debtor’s Plan and Disclosure Statement; and the post-
Effective Date Settlements presented to the bankruptcy and district courts.
The Marcellus Shale formation, which underlies much of
Pennsylvania, is one of our country’s largest shale gas fields. Chesapeake is
a principal leaseholder in the Marcellus Shale play. 2 Chesapeake pays
1
Pennsylvania’s Attorney General also filed suit on related charges, but as will be
seen, that suit proceeded and was settled according to usual bankruptcy procedures and
provides substantial benefits to landowners.
2
Chesapeake Energy Corp. engages in energy exploration and development, and
drills for oil and gas throughout the U.S. It is headquartered in Oklahoma. Chesapeake’s
subsidiary, Chesapeake Appalachia, LLC, holds Chesapeake’s Pennsylvania lease
interests, which are in part the subject of the underlying dispute. Chesapeake and its
related entities each filed Chapter 11 petitions, and the cases were consolidated by the
3
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royalties to lessors in exchange for the right to explore for and extract shale
gas. The leases are real property interests under state law.
In 2013 and 2014, Pennsylvania lessors sued Chesapeake in federal
court for underpaying royalties. In 2015, the Pennsylvania Attorney General
sued Chesapeake on similar grounds in state court.
A. The Demchak Litigation
The first lawsuit filed was Demchak Partners Ltd., et al., v. Chesapeake
Appalachia, LLC, No. 13-2289 (M.D. Pa. 2013). The plaintiffs sued in the
Middle District of Pennsylvania on behalf of a putative class of thousands of
oil-and-gas lessors whose leases contained a “Market Enhancement Clause”
(MEC). The MECs prohibited Chesapeake from deducting from the lessors’
royalties any postproduction costs incurred to transform extracted gas into a
marketable form. The complaint alleged that Chesapeake had failed to honor
this clause for several years.
Before the lawsuit was filed, the Demchak plaintiffs and Chesapeake
preliminarily reached a class-wide settlement agreement (later amended)
that would have provided class members with approximately $17 million, and
would have modified the terms of the MECs in the class members’ leases by
obliging Chesapeake to “bear 34 percent of future post-production costs.”
The district court preliminarily approved the proposed amended class
settlement on September 30, 2015. Notice of the proposed settlement was
sent to putative class members. But thousands of class members, about 20%
of the class, opted out. Chesapeake petitioned for Chapter 11 relief before the
Pennsylvania court approved the settlement.
bankruptcy court. Chesapeake Energy Corp. and its relevant subsidiaries are collectively
referred to as “Chesapeake.”
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B. The Brown-Suessenbach Litigation
In 2014, Chesapeake was sued twice in the Middle District of
Pennsylvania on behalf of a putative class of several thousand other
Pennsylvania oil-and-gas lessors whose leases did not include an MEC (the
non-MEC suits). See Brown v. Access Midstream Partners, LP, No. 14-591
(M.D. Pa. 2014); Suessenbach v. Access Midstream Partners, LP, No. 14-1197
(M.D. Pa. 2014). Both sets of plaintiffs alleged, inter alia, that Chesapeake
improperly inflated post-production costs before deducting them, resulting
in royalty underpayments.
Brown and Suessenbach were consolidated, and the Brown-Suessenbach
plaintiffs reached a preliminary settlement agreement with Chesapeake that
would have provided class members with $7.75 million and modified the
leases by affording a lessor’s option to choose between two formulas for
future calculation of royalties. Before preliminary approval of class action
status or the settlement was granted, Chesapeake petitioned for Chapter 11
relief.
C. The Attorney General Litigation
Pennsylvania’s Attorney General (PAAG) sued Chesapeake in
Pennsylvania state court in 2015. The PAAG alleged that Chesapeake
violated Pennsylvania law in a variety of ways in its dealings with lessors, by
inflating prices, engaging in unfair leasing practices and improper
deductions, and making an undisclosed market allocation agreement. The
parties’ litigation was pending at the Pennsylvania Supreme Court when
Chesapeake filed for bankruptcy. The automatic stay was lifted to allow the
state Supreme Court to rule. Ultimately, the PAAG filed a proof of claim
during the pendency of Chesapeake’s bankruptcy and settled with
Chesapeake before the Plan’s Effective Date, as discussed below.
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D. The Reorganization Proceedings, Plan, and Disclosure Statement
On June 28, 2020, pressed by ongoing low gas prices compounded by
the COVID pandemic’s market disruption, Chesapeake filed for Chapter 11
reorganization in the Southern District of Texas. The Pennsylvania cases
described above were automatically stayed. See 11 U.S.C. § 362(a)(1). The
bankruptcy court set a Claims Bar Date of October 30, 2020, for filing proofs
of claim that arose before the petition date. The Bar Date Order warns that
unfiled or untimely Proofs of Claim will result in discharge of the claimant’s
debt and the claimant will be “forever barred, estopped, and enjoined from
asserting such claim . . . .”
None of the named plaintiffs in the class actions filed proofs of claim,
nor did the vast majority of landowners within the putative classes. No proof
of claim was filed on behalf of either class.
The PAAG, however, did file a timely proof of claim, as did 161
individual leaseholders within the two putative classes, including appellants.
On January 16, 2021, only seven months after Chesapeake filed for
bankruptcy, the bankruptcy court confirmed Chesapeake’s Fifth Amended
Joint Chapter 11 Plan of Reorganization (“the Plan”). The Plan must be read
in conjunction with the debtor’s Disclosure Statement. In pertinent part, the
Disclosure Statement explained the scope and treatment of Chesapeake’s
creditor classes; the “material litigation” and “litigation risks” surrounding,
inter alia, the Pennsylvania cases; and the consequences of late-filed claims
against the debtor.
At the date of Chesapeake’s bankruptcy, the claims of the
Pennsylvania landowners consisted of (a) monetary damages owed for
underpaid royalties and (b) discontent with the methods by which
Chesapeake calculated ongoing royalties under the MEC and non-MEC
leases. The Disclosure Statement provided that the landowners’ liquidated
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royalty claims were to be added to a class of other general unsecured claims.
According to the Disclosure Statement, holders of Allowed Proofs of Claim
within this class were estimated to receive 0.1% of the amounts Chesapeake
owed them. Chesapeake reemphasized this treatment of the royalty claims
in a discussion titled, “Preservation of Royalty and Working Interests.”
According to that paragraph, “[f]or the avoidance of doubt,” any prepetition
or pre-Effective Date right to a royalty payment “shall be treated as a Claim
under the Plan and shall be subject to any discharge” without prejudice to
post-Effective Date royalty right disputes or claims.
Significantly, the Plan, reinforced by these Disclosure Statement
Provisions, assured Chesapeake’s creditors that the Pennsylvania leases
“shall remain in full force and effect in accordance with the terms of the
granting instruments or other governing documents . . . [and] no
Royalty . . . Interests shall be compromised or discharged by the Plan . . . .”
The Plan rejected the pending prepetition Demchak and Brown-
Suessenbach settlement agreements. At the same time, the Disclosure
Statement identified and described all three Pennsylvania cases as “Pending
Material Litigation,” in which the debtors “dispute liability . . . and intend to
vigorously defend . . . .” Later on, the Disclosure Statement characterized
all such pending material litigation as among the “risk factors” following
Plan confirmation. While acknowledging the uncertainty of litigation
outcomes, the debtor also believed “substantially all pending prepetition
litigation will result in General Unsecured Claims, which will be treated in
accordance with the Plan and discharged thereunder.”
The Plan also stated that “any and all Proofs of Claim Filed after the
Claims Bar Date shall be deemed disallowed and expunged as of the Effective
Date,” “[e]xcept . . . as agreed to by the Reorganized Debtors” or “unless
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such late Proof of Claim has been deemed timely Filed by a Final Order or
otherwise allowed by order of the Bankruptcy Court.”
The Plan’s Effective Date was February 9, 2021, that is, the defined
date on which the Plan was “consummated.” The confirmation order
became final without appeal.
Even though the Plan authorized late filing of proofs of claim, none
were filed by or on behalf of the class plaintiffs or class members. Therefore,
only the PAAG and the 161 individual leaseholders who filed timely Proofs of
Claim were eligible to vote or receive any distributions on account of their
money damage claims. 11 U.S.C. § 1126(a). The leases rode through the
bankruptcy unimpaired.
In sum, those creditors who studied the Disclosure Statement—
especially filers of timely Proofs of Claim whose favorable votes on the Plan
were being solicited—would have concluded that Chesapeake (1) owed little
or nothing on the Pennsylvania royalty owners’ class actions because they did
not file timely Proofs of Claim or because their claims, if timely, would fall in
the general unsecured class; and (2) kept the Pennsylvania lease agreements
with their MEC or non-MEC royalty formulas intact.
E. The Settlements
On the Effective Date, the PAAG settled with Chesapeake. Several
features of the settlement are noteworthy. First, because the PAAG timely
filed its claim, it preserved the ability to settle prepetition royalties for $5.3
million on behalf of participating leaseholders. Second, MEC leaseholders
were given an option to have future royalties paid based on the higher of the
in-basin index price or a netback price. Those with non-MEC leases could
choose either the in-basin index price or a netback price for future royalties.
Third, leaseholders could decide whether to opt in to the settlement or to
retain their original bargained-for lease terms and claims for underpaid
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royalties. This settlement did not release private claims. This settlement
was approved by the bankruptcy court as part of the usual claims adjudication
process and is final.
A month after the Effective Date, however, Chesapeake also reached
“settlement agreements” with both the Demchak (MEC) and Brown-
Suessenbach (non-MEC) plaintiffs. These settlements purportedly resolved
all of Chesapeake’s remaining Pennsylvania royalty-related litigation and
disputes.
The MEC Settlement required Chesapeake to pay $5,000,000 to the
class members arising from prepetition royalty claims. It also altered the
future royalty formulas for their leases by allowing MEC class members to
choose to have their royalties calculated each month based on the higher of
the in-basin index or netback price. 3 Thus, if Chesapeake transported gas
and, after making allowed deductions, received prices higher than the in-
basin index price, the landowner would be paid royalties based on the higher
price. The MEC Settlement also prevented Chesapeake from deducting
from its royalty obligations gas “used as fuel, lost, or otherwise unaccounted
for,” limited various deductions for marketing fees and third-party services
or operations, and prevented Chesapeake from carrying a negative balance
forward from any months in which costs exceed sale prices. As to the twenty
percent of the original Demchak class who had opted out several years
previously, the MEC settlement was framed to force those landowners back
into the class and require them to opt out again.
3
The in-basin price is the average of two oil-and-gas price indexes. The netback
price is the average sales price Chesapeake receives for its “production month sales to third
parties minus a proportionate share” of postproduction costs.
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The Non-MEC Settlement required Chesapeake to pay $1.25 million
to the class arising from prepetition royalty claims. It also allowed class
members to “choose how to have their royalties calculated going forward,
using either the in-basin index or netback price,” but “they can only make
their election once, not each month.”
Together, the Pennsylvania, MEC and Non-MEC settlements
purportedly resolve the claims of approximately 23,000 Pennsylvania
landowners. Under the MEC and non-MEC settlements, Chesapeake is
released from liability for all past and future claims.
Chesapeake sought preliminary approval of the MEC and non-MEC
settlements in the bankruptcy court. Pennsylvania lessors who filed proofs
of claim (“Proof of Claim Lessors”) opposed Chesapeake’s motion. The
bankruptcy court ultimately concluded that it had “core” jurisdiction over
the settlements pursuant to 28 U.S.C. § 1334(a), and that the settlements
were “in the best interests of the Debtors’ estates, their creditors, and other
parties in interest.” See Fed. R. Bankr. P. 9019. Consequently, the court
overruled the Proof of Claim Lessors’ objections, preliminarily approved the
settlements, preliminarily certified the settlement classes, and approved the
form and manner of class notices. The bankruptcy court also concluded that
an Article III court should make the final determinations regarding class
certification and settlement approval.
On appeal, the district court affirmed the bankruptcy court’s
preliminary approval of the settlements. The district court stated that a
“similar class settlement was preliminarily approved by the Middle District
of Pennsylvania before Chesapeake declared bankruptcy,” and that the
“record shows that the class settlements are the most practical vehicle for
recovery for most of the class members.”
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The Proof of Claim Lessors appealed the district court’s approval of
the settlements to this court and requested a stay. The district court denied
a stay, asserting that appellants had “not shown that their appeal [was] likely
to be successful,” or that “they will be harmed” by preliminary approval
given that they could opt-out of the settlement class or reassert their
objections at the final confirmation hearing. Two putative class members
then objected to the district court’s final approval: Lillian Sarnosky (a lessor
with an MEC lease provision) and Charlene Walters (a non-MEC lessor).
A final class action fairness hearing occurred on July 27, 2021. A
month later, the district court granted final approval to the two class
settlements. 4 The district court differed from the bankruptcy court’s
determination of “core” jurisdiction. It explained instead that jurisdiction
existed to adjudicate the settlements because they “relate to” the confirmed
Chapter 11 plan. The court also held that the named plaintiffs had standing,
that the disputes were not moot, that each of the Federal Rules of Civil
Procedure 23(a) and (b) class action factors was satisfied, and that the
settlements satisfied the requirements of Rule 23(e) and the factors identified
in Reed v. General Motors Corp., 703 F.2d 170, 172 (5th Cir. 1983). The court
rejected a challenge to the settlement notices. 5 Finally, the district court
approved the settlements’ attorney fee provisions given the reasonableness
4
The district court withdrew the initial final approval order and re-entered the
order in October 2021 after correcting certain clerical errors.
5
The court concluded that “[t]he notice sent to the absent MEC and Non-MEC
class members was the best notice practicable under the circumstances, as required under
Rule 23(e)(1),” and that the opt-out procedures were “not unduly burdensome,” including
for those plaintiffs who years prior opted out of the proposed Demchak settlement in the
Middle District of Pennsylvania.
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of the sums requested by named plaintiffs’ counsel for years of (mostly
prepetition) work and the challenging issues they addressed.
Sarnosky and Walters appealed every aspect of the final approval
order to this court. At their request, this court consolidated the Proof of
Claim Lessors’ appeal from the preliminary approval order with Sarnosky
and Walters’ appeal from the final approval order. We have appellate
jurisdiction pursuant to 28 U.S.C. § 158(d). We need only discuss whether
the bankruptcy and district courts had jurisdiction under 28 U.S.C. § 1334 to
hear and decide these “class” claims.
II. Discussion
The lower courts’ subject-matter jurisdiction is reviewed de novo. In
re Galaz, 841 F.3d 316, 321 (5th Cir. 2016); In re Deepwater Horizon, 739 F.3d
790, 798 (5th Cir. 2014).
Congress vested district courts with jurisdiction over bankruptcy
“(1) ‘cases under title 11,’ (2) ‘proceedings arising under title 11,’
(3) proceedings ‘arising in’ a case under title 11, and (4) proceedings ‘related
to’ a case under title 11.” In re U.S. Brass Corp., 301 F.3d 296, 303 (5th Cir.
2002) (citing 28 U.S.C. § 1334(a)–(b)). “The first category refers to the
bankruptcy petition itself.” Id. at 304. The latter three further define the
scope of bankruptcy jurisdiction, with “related to” jurisdiction being the
broadest category. Id. “Related to” jurisdiction exists where “the outcome
of the proceeding could conceivably have an effect on the debtor’s estate.”
In re Craig’s Stores of Texas, Inc., 266 F.3d 388, 390 (5th Cir. 2001). The
district courts routinely delegate authority to bankruptcy judges over
bankruptcy cases and “core” proceedings “arising under” and “arising in”
Title 11. 28 U.S.C. § 157(a)–(b). Adjudications of prepetition claims against
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a debtor’s estate are core proceedings. In re Wood, 825 F.2d 90, 92 (5th Cir.
1987).
Following the confirmation of a Chapter 11 reorganization plan,
bankruptcy jurisdiction is limited to matters “pertaining to the
implementation or execution of the plan.” Craig’s Stores, 266 F.3d at 390.
For instance, a reorganized debtor often must resolve, post-confirmation, the
amounts owed on proofs of claim, administrative claims, preference and
fraudulent transfer claims, and attorneys’ fees, all of which fall within “core”
bankruptcy jurisdiction. See generally 28 U.S.C. § 157(b). Within its core
jurisdiction, the court may also be called upon to interpret the terms of a
confirmed reorganization plan. In re U.S. Brass, 301 F.3d at 306. But
generally, after “a debtor’s reorganization plan has been confirmed . . .
bankruptcy jurisdiction[] ceases to exist.” Craig’s Stores, 266 F.3d at 390.
“Once the bankruptcy court confirms a plan of reorganization, the debtor
may go about its business without further supervision or approval.” Id.(quoting Pettibone Corp. v. Easley, 935 F.2d 120, 122 (7th Cir. 1991)).
Chesapeake, seconded by each class, contends initially that the two
class action settlements fall within the bankruptcy and district courts’
“core” claims-handling jurisdiction because they resolved the leaseholders’
suits for past royalties, money damages and royalty interpretation issues.
Alternatively, Chesapeake relies on the “narrower,” “more exacting”
standard for post-confirmation jurisdiction, as found by the district court. In
re U.S. Brass Corp., 301 F.3d at 304–05.
A. Core Bankruptcy Jurisdiction
We reject the first contention. These settlements are not within
ordinary claims adjudication. Prior to bankruptcy, only the MEC Class had
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been preliminarily certified, yet no class proof of claim was filed on its behalf. 6
Thousands of leaseholders who were potential class members never filed
proofs of claim, nor did Chesapeake file a proof of claim of any sort
referencing the Pennsylvania royalty claims. See 11 U.S.C. § 501(c).
Chesapeake’s Plan emphatically holds that “Proofs of Claim Filed after the
Claims Bar Date shall be deemed disallowed and expunged as of the Effective
Date.” The debtor points out that the provision bars late filed claims
“[except] . . . as agreed to by the Reorganized Debtors” or “unless such late
Proof of Claim has been deemed timely Filed by a Final Order or otherwise
allowed by order of the Bankruptcy Court.” But because no such late Proofs
of Claim have ever been filed, they cannot have been “deemed timely Filed.”
And in any event, neither of the courts below so held.
This reading of the Plan—that the class members’ unfiled claims
merit no post-confirmation recovery—is not a semantic quibble tacitly
overcome by the lower courts’ settlement approvals. It is important to note
that even the district court repeatedly acknowledged that for class members
who filed no proofs of claim, “the bankruptcy extinguished their prepetition
royalty valuation claims against Chesapeake.” The court cited 11 U.S.C.
§ 524(a) and Matter of Edgeworth, 993 F.2d 51, 53 (5th Cir. 1993) (“A
discharge in bankruptcy . . . releases the debtor from personal liability for the
debt”). The district court was correct. Moreover, Chesapeake’s counsel
confirmed the effect of the Plan as he rebuffed a group of Pennsylvania
leaseholders who sought, post-confirmation, to enforce prepetition royalty
claims against the debtor. Counsel admonished them that because the claims
6
This court has yet to take a position on whether a class proof of claim is available
consistent with the Bankruptcy Code and Rules. See Teta v. Chow, 712 F.3d 886, 892 (5th
Cir. 2013). Thus, we assume arguendo but do not decide that such a claim could have been
filed.
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had not been timely filed, “such claims . . . were discharged and there is
nothing further to pursue in any forum after the Plan Effective Date.” The
lower courts were not empowered to revive never-filed, discharged claims as
if they were engaged in a “core” claims adjudication proceeding.
Moreover, treating the class actions as if there had been timely filed
proofs of claim disregards the reorganization process. The requirement to
file proofs of claim is more than a technicality in Chapter 11. Proofs of claim
are the touchstone for plan approval and proper distribution of the debtor’s
assets allotted to each creditor class. Only holders of “allowed” filed claims
are entitled to vote on the plan. 11 U.S.C. §§ 1126(a), 502(a), 501(a). The
universe of such claims determines the constituency for required majority
votes in each voting class. Further, as Chesapeake’s Disclosure Statement
promised, 7 and the debtor admits in its brief, the debtor “must treat all of its
unsecured creditors comparably . . . .” In this case, the Pennsylvania
leaseholders’ royalty claims were classified as general unsecured claims by
the Plan and Disclosure Statement. The Disclosure Statement roughly
estimated that those claims might be paid 0.1% of the prepetition amount. Yet
under the class settlements (excluding the separate fund contained in the
PAAG settlement), the Leaseholders could obtain well over twenty percent
of the amounts they negotiated in the prepetition Pennsylvania federal court
suits. We cannot know how the vote to approve the Plan would have turned
out had the Pennsylvania leaseholders filed general unsecured claims. But
the enormous recovery windfall Chesapeake is now willing to pay the class
7
The Disclosure Statement states that “[e]ach holder of an Allowed Claim will
receive the same treatment as other holders of Allowed Claims in its Applicable Class . . . .”
Even if this statement is construed broadly, the different “treatment” proposed here
between Pennsylvania royalty owners who never filed Proofs of Claim and other members
of the general unsecured class is eye-popping and unsupportable.
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members compared with other general unsecured creditors belies equal
treatment within this creditor class. Whether intentionally or
unintentionally, Chesapeake’s unorthodox approach to revising its
relationships with thousands of Pennsylvania royalty owners thwarted the
transparency of the reorganization process.
Chesapeake’s additional argument for “core” jurisdiction also does
not withstand scrutiny. It contends that because 161 leaseholders did file
timely Proofs of Claim, its class settlements could be approved by the courts
within bankruptcy “core” jurisdiction. This audacious attempt to bootstrap
a few objectors’ preserved rights into a basis for a “fundamental reset”
between the debtor and nearly 23,000 other Pennsylvania lessors who did not
preserve their rights will not fly.
B. Related-to Jurisdiction
The applicability of “related to jurisdiction” in this post-confirmation
setting presents a closer question. In Craig’s Stores, this court considered
conflicting rulings in the courts of appeals and articulated standards for post-
confirmation bankruptcy jurisdiction. Those have since been regularly
applied in this circuit to determine when a reorganized debtor can no longer
“come running to the bankruptcy judge every time something unpleasant
happens.” Pettibone Corp. v. Easley, 935 F.2d 120, 122 (7th Cir. 1991). While
some cases can be decided without them, the three Craig’s Stores factors are
a “useful heuristic” for determining whether a matter concerns the
effectuation of the plan. In re GenOn Mid-Atl. Dev., L.L.C., 42 F.4th 523,
534 (5th Cir. 2022). First, do the claims at issue “principally deal[] with post-
confirmation relations between the parties?” Craig’s Stores, 266 F.3d at 391.
Second, was there “antagonism or [a] claim pending between the parties as
of the date of the reorganization?” Id. Third, are there any “facts or law
deriving from the reorganization or the plan necessary to the claim?” Id.; see
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also In re Enron Corp. Sec., 535 F.3d 325, 335–36 (5th Cir. 2008) (applying the
factors). We consider each query in turn.
1. Principally Dealing with Post-Confirmation Relations
Chesapeake contends, and the MEC class and non-MEC class
plaintiffs agree, that because the settlements predate bankruptcy, they do not
“principally deal” with Chesapeake’s post-confirmation business. 8 They
rely on the district court’s characterization of the settlements.
This argument is wholly unpersuasive. It ignores that the debtor’s
reorganization plan discharged the non-filing leaseholders’ pre-confirmation
monetary claims against Chesapeake while leaving their leases absolutely
intact. The Plan permitted late-filed claims, but none were filed. The Plan
stated that all claims not preserved and disposed of by the Effective Date
8
Although the appellees recast the district court’s analysis in terms of the Craig’s
Stores test, the district court applied somewhat different factors. First developed in the
bankruptcy courts, the district court’s approach is an attempt to summarize the
considerations present in Craig’s Stores and In re U.S. Brass Corp. It makes use of six
factors:
(1) when the claim at issue arose; (2) what provisions in the confirmed plan
exist for resolving disputes and whether there are provisions in the plan
retaining jurisdiction for trying these suits; (3) whether the plan has been
substantially consummated; (4) the nature of the parties involved;
(5) whether state law or bankruptcy law applies; and (6) indices of forum
shopping.
See, e.g., In re Encompass Servs. Corp., 337 B.R. 864, 873 (Bankr. S.D. Tex. 2006), aff’d,
2006 WL 1207743 (S.D. Tex. May 3, 2006).
We see no reason to reframe our precedent in this manner. The co-existence of
two tests stands to confuse lower courts and create needless additional work for the parties
to bankruptcy. The Craig’s Stores factors are firmly rooted in precedent, whereas the other
test has never been used or even mentioned by the Fifth Circuit. Moreover, In re Brass
Corp. did not purport to introduce new factors to or otherwise modify the Craig’s Stores
test; it applied it. 301 F.3d at 305 (concluding that “the Appellants’ motion pertains to the
plan’s implementation or execution and therefore satisfies the Craig’s Stores test”).
Therefore, no other standard is necessary.
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were discharged. For example, Article VIII, Section A of the Plan, labeled
“Discharge of Claims and Termination of Interests,” provides:
The Confirmation Order shall be a judicial determination of the
discharge of all Claims (other than the Reinstated Claims) and
Interests (other than the Intercompany Interests that are
Reinstated) subject to the occurrence of the Effective Date.
Further, Article III, Section D of the Plan, labeled “Releases of Holders of
Claims and Interests,” provides:
[O]n and after the Effective Date . . . each Released Party is,
and is deemed to be, hereby conclusively, absolutely,
unconditionally, irrevocably and forever, released and
discharged by each Releasing Party from any and all Causes of
Action.
These releases also bar all creditors from seeking post-confirmation
judgments against Chesapeake. And if these provisions were not explicit
enough, the Plan rejected each of the pre-bankruptcy settlements that had
been effected in the Pennsylvania federal court.
Consequently, the vast majority of claimants in the Demchak and
Brown-Suessenbach suits, unlike those few lessors who timely filed proofs of
claim, have no recourse in bankruptcy court for their prepetition monetary
claims. See generally 11 U.S.C. § 1141(d) (with no relevant exceptions, the
confirmation of a plan discharges the debtor from any claims that arose pre-
confirmation). As to the non-filers, Chesapeake’s pre-Effective Date debts
for deficient or improperly calculated royalties were discharged and
“expunged”; the claimants cannot resurrect them, use them to invoke
bankruptcy jurisdiction, and then lay them to rest via class settlements.
Reinforcing this conclusion is the fact that, contrary to the Plan, the
settlement agreements mandatorily modify the terms of the leases going
forward for all the class members, even those who originally opted out of the
Demchak settlement. Chesapeake estimates that the new terms will yield the
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class members millions more in royalties in future years, but the settlements
also bar future claims by any class members. Yet the reorganization Plan
stated that the leases would ride through the reorganization unaffected.
Another curious but purely forward-looking feature of the class
settlements is their interrelation with the PAAG settlement, which occurred
after it filed a timely proof of claim. The MEC and non-MEC classes both
extol the symbiotic settlement gains. Notably, the PAAG received a
multimillion-dollar settlement fund that can be disbursed to leaseholders;
and the PAAG settlement offers similar lease modifications to those in the
class settlements. But the PAAG settlement, unlike the class settlements,
offers the leaseholders the option to revise their future royalty treatment,
whereas the class settlements are mandatory. Pre-bankruptcy, these parties
were not tied together as they are now. Accordingly, the first Craig’s Stores
factor weighs against jurisdiction.
2. Antagonism or Claims Pending at the Date of Reorganization
Chesapeake points out that the “antagonism” between the parties
predated the plan’s confirmation. That is correct, but the lessors’ class
actions against Chesapeake did not survive confirmation. Post-confirmation,
the class members could no longer pursue their discharged claims, and the
Plan by its express terms did not adversely affect or modify their prepetition
royalty provisions. As a result, this Craig’s Store factor does not pull the
class settlement agreements within the scope of bankruptcy’s “related-to”
jurisdiction.
3. Facts or Law Deriving from the Reorganization Necessary to the Claim
The third factor also works against the class plaintiffs. Nothing in
Chesapeake’s reorganization plan is necessary to the disposition of the class
action claims or the settlement agreements. Those agreements have
“nothing to do with any obligation created by the debtor’s reorganization
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plan.” Craig’s Stores, 266 F.3d at 391. Nor does Chesapeake assert, as
Craig’s Stores attempted to claim, that modifying the status of the
Pennsylvania leases going forward will affect its distribution to creditors
under the Plan. Id. Quite the opposite: the settlements contradict the plan.
Whereas the plan discharged debts unless a timely proof of claim was filed,
the settlements require Chesapeake to pay the non-filing lessors a portion of
their royalty claims far higher than other creditors’ timely filed general
unsecured claims. Whereas the plan assumed that Chesapeake’s leases
would ride through bankruptcy unaffected, the settlement requires a
mandatory alteration in the terms of thousands of Pennsylvania leases. Far
from merely enforcing the plan, the settlement accomplished a self-described
“fundamental reset of Chesapeake’s relationship with its Pennsylvania
lessors.” The effect of this reset on Chesapeake’s creditors concerns the
future, not the consummated reorganization.
Thus, the approval of the settlements did not pertain “to the
implementation or execution of the plan.” Craig’s Stores, 266 F.3d at 390. It
would make little sense to hold that post-confirmation bankruptcy
jurisdiction extends to these agreements, given that they are voluntary
arrangements paying off claims that were already discharged by the
bankruptcy. This is especially so because the terms of the confirmed Chapter
11 reorganization plan barred the two forms of relief that the agreements
purport to grant: additional monetary relief and modification of the leases. 9
III. Conclusion
For these reasons, the bankruptcy and district courts lacked
jurisdiction to approve these two post-Effective Date settlements. Whatever
9
This court’s decision in In re Enron Corp. Sec., 535 F.3d 325, 335 (5th Cir. 2008),
is not apposite. That case held that lawsuits removed to the bankruptcy court during
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claims may have accrued to Pennsylvania leaseholders after the Effective
Date of Chesapeake’s Plan are the only claims for which there is now a
remedy, 10 but such post-confirmation claims are unrelated to the bankruptcy.
Accordingly, the bankruptcy and district court judgments are
VACATED, and the settlement proceedings are remanded with
instructions to DISMISS for lack of jurisdiction.
Enron’s reorganization remained within the court’s jurisdiction post-confirmation. Here,
the lawsuits were never removed, just stayed pursuant to 11 U.S.C. § 362(a)(1).
10
Such post-confirmation claims may well have been diminished by the PAAG
settlement. Chesapeake asserts it has been offering leaseholders the new royalty payment
terms since February 2021 pursuant to the PAAG settlement.
21