Cole v. Nabors Corporate Servs., Inc. (In re CJ Holding Co.)
Cole v. Nabors Corporate Servs., Inc. (In re CJ Holding Co.)
Opinion of the Court
Cole appeals from the bankruptcy court's Order enforcing a December 2016 Confirmation Order and Plan provision enjoining him from pursuing litigation or arbitration against Nabors Corporate Services, Inc. and Nabors Industries, Ltd. (Bankr. Docket Entry Nos. 2501, 2514). Cole challenges the bankruptcy court's jurisdiction to enforce the December 2016 Confirmation Order and argues that the court violated Bankruptcy Procedure Rule 9006(d). (Docket Entry No. 6). Nabors responded, and Cole replied. (Docket Entry Nos. 8, 9).
Based on the parties' briefs, the response and reply, the record, and the applicable law, the court denies Cole's appeal and affirms the bankruptcy court's Order. The reasons are detailed below.
I. Background
John Cole was an employee of Nabors Completion & Production Services. In May 2014, Cole filed a claim with the Equal Employment Opportunity Commission for sexual harassment, discrimination, and retaliation against Nabors Completion. The Commission issued a right-to-sue order in August 2016. (Docket Entry No. 2 at 3505). In 2015, Nabors Completion became a wholly owned subsidiary of C&J Energy Services, Ltd., and changed its name to C&J Well Services.
In July 2016, C&J Well Services and several other affiliated companies filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code. (Docket Entry No. 2 at 3505). The bankruptcy court entered a Bar Date Order, requiring any person asserting claims against the debtors to file proofs of claim by November 8, 2016. (Bankr. Docket Entry No. 756). The Order stated that creditors who did not file proofs of claim by that date would be "forever barred, estopped, and enjoined from asserting such claims against the [d]ebtors," and the "[d]ebtors and their property shall be forever discharged from any and all indebtedness or liability with respect to or arising from such claim." (Id. ).
The debtors provided Cole, among others, notice of the Bar Date Order. He did not file a proof of claim by the bar date. On November 17, 2016, 10 days after the bar date expired, Cole filed a motion for relief from the automatic stay, seeking the bankruptcy court's permission to bring his claims against C&J Well Services in litigation or in arbitration. (Bankr. Docket Entry No. 821). The next day, before the bankruptcy court ruled on the motion, *602Cole sued Nabors Industries, Ltd. and Nabors Corporate Services, Inc. in the United States District Court for the Western District of Texas,
The bankruptcy court confirmed the debtors' reorganization Plan in December 2016. (Bankr. Docket Entry No. 1057). The Confirmation Order released all claims against the debtors, stating as follows:
Release by Holders of Claims and Interests . As of the Effective Date, each Releasing Party is deemed to have released and discharged each Debtor, Reorganized Debtor, and Released Party from any and all Causes of Action, whether known or unknown, including any derivative claims, asserted on behalf of the Debtors, that such entity would have been legally entitled to assert (whether individually or collectively), based on or relating to, or in any manner arising from, in whole or in part, the Debtor[']s, the Debtors' in- or out-of-court restructuring efforts, intercompany transactions...the Plan..., or upon any other related act or omission, transaction, agreement, event, or other occurrence , taking place on or before the Effective Date....[T]he foregoing release does not release any obligations of any party under the Plan or any document, instrument, or agreement executed to implement the Plan.
Injunction . [A]ll Entities who have held, hold, or may hold Claims or Interests that have been released, discharged, or are subject to exculpation are permanently enjoined, from and after the Effective Date, from taking any of the following actions against...the Debtors...or the Released Parties: (1) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interest;...and (5) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests released or settled pursuant to the Plan.
Defined Terms .
"Released Party " means...(a) the Supporting Creditors; (b) the Backstop Parties; (c) the Credit Agreement Agent; (d) the Lenders;...(j) Nabors; and (k)...each of the foregoing entities'...current and former Affiliates and subsidiaries....
"Releasing Parties" means...(a) the Supporting Creditors; (b) the Backstop parities, (c) the DIP Facility Lenders, (d) the Credit Agreement Agent, (e) the Lenders, (f) the DIP Facility Agent, (g) the Committee and its members, (h) Nabors, (i) all holders of Claims, (j) all holders of Interests, and (k)...each of the forgoing entities['] current and former Affiliates and subsidiaries....
"Nabors" means Nabors Industries Ltd. and its subsidiaries and Affiliates other than the Debtors.
(Docket No. 2 at 3917, 3919-20, 3951-53) (emphasis added).
The Confirmation Order also stated that:
[t]he release by the Releasing Parties...set forth in...the Plan, is an essential provision of the Plan. The Third Party Release is: (a) in exchange for the good and valuable consideration provided by the Released Parties; (b) a good-faith settlement and compromise of the claims and Causes of Action released by the Third Party Release; (c) materially *603beneficial to, and in the best interests of, the Debtors, their Estates, and their stakeholders, and is important to the overall objectives of the Plan to finally resolve certain Claims among or against certain parties in interest in these Chapter 11 Cases; (d) fair, equitable, and reasonable; (e) given and made after due notice and opportunity for hearing; and (f) a bar to any of the Releasing Parities asserting any claim or Cause of Action released by the Third Party Release against any of the Released Parties; and (g) consistent with sections 105, 524, 1123, 1129, and 1141 and other applicable provisions of the Bankruptcy Code.
(Docket Entry No. 2 at 3706-07).
On March 4, 2017, Cole filed an amended motion in the bankruptcy court for relief from the automatic stay so that he could pursue his lawsuit against Nabors Corporate and Nabors Industries. (Bankr. Docket Entry No. 1325). The bankruptcy court held a hearing and then denied Cole's motion, with prejudice. (Bankr. Docket Entry No. 1403). Cole moved for reconsideration, and the bankruptcy court modified the order to deny the motion without prejudice. (Bankr. Docket Entry Nos. 1440, 1449). Cole did not file a new motion or appeal the denial.
Cole proceeded with his lawsuit against Nabors Corporate and Nabors Industries. In March 2017, the district court compelled Cole to proceed to arbitration. (Docket Entry No. 8 at 14). On August 23, 2018, before the arbitration hearing was held, Nabors Corporation filed a motion with the bankruptcy court, seeking a permanent injunction precluding Cole from pursuing either his lawsuit or arbitration. (Id. ; Bankr. Docket Entry No. 2491).
On August 28, 2018, the bankruptcy court granted Nabors Corporation's motion, ruling that Cole "is permanently enjoined from pursuing any and all claims" against the debtors and other parties released in the Plan. (Bankr. Docket Entry No. 2501). The bankruptcy court ordered Cole to dismiss with prejudice both his lawsuit in the district court and the related arbitration. (Id. ). Cole argues that he did not have enough time to respond to the motion before the bankruptcy court ruled, without a hearing, six days after the motion was filed. Cole appealed the Order in September 2018. (Docket Entry No. 1).
Cole argues that the bankruptcy court did not have jurisdiction to enforce the Confirmation Order and Plan Injunction by enjoining him from pursuing his lawsuit and arbitration against the Nabors entities, because they were not parties to the bankruptcy proceeding, and because the lawsuit and arbitration would not affect either the debtors' estate or the bankruptcy administration. Cole also argues that the bankruptcy court violated the Federal Rules of Bankruptcy Procedure by not either allowing him time to respond to the motion, issuing an order shortening the time to respond, or holding a hearing. (Docket Entry No.1); FED. R. BANKR. P. 9006, 9014.
The Nabors entities respond that the bankruptcy court had jurisdiction to enjoin Cole from pursuing claims against released parties in the Plan Confirmation Order. Cole had the opportunity to file proofs of these claims in the bankruptcy court, but he failed to do so. Cole may not, according to Nabors, bring these claims in litigation or in arbitration, because claim and issue preclusion apply, and he may not collaterally attack the bankruptcy court's jurisdiction to issue the Confirmation Order and the subsequent injunction.
Nabors Corporate and Nabors Industries also argue that, even if the bankruptcy court issued the August 2018 injunction without giving Cole time to respond, the error is harmless. They contend that Cole *604did not, and cannot, show that his claims against the Nabors entities can survive the December 2016 Confirmation Order.
Each argument and response is analyzed below.
II. Jurisdiction and Standard of Review
A federal district court has jurisdiction to hear appeals from a bankruptcy court's final orders under
III. Analysis
A. Jurisdiction
1. Preclusion
A bankruptcy court's jurisdiction is governed by
A bankruptcy court also has "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11."
The parties do not dispute that Cole's claims of sexual harassment, discrimination, and retaliation are "based on," "relate to," or "arise from" the actions of C&J Services, one of the debtors in the bankruptcy proceeding. Because the bankruptcy court "plainly had jurisdiction to *605interpret its own [confirmation order]," Travelers Indem. ,
Cole argues that, although the claims he asserted against Nabors Corporate and Nabors Industries in the district court are identical to those he sought to assert against the debtors in the bankruptcy proceeding, that is "insufficient to bring a third-party dispute within a bankruptcy court's jurisdiction." (Docket Entry No. 6 at 17 (citing In re Zale Corp. ,
In Travelers Indemnity Co. v. Bailey ,
The Supreme Court held that preclusion has equal force in preventing a collateral attack on the bankruptcy court's decision confirming its own subject-matter jurisdiction.
Like the creditor in Travelers Indemnity , Cole was a party in the bankruptcy proceeding. The debtors served him with the Notice of Bar Date, informing him of the deadline to file his proofs of claim with the bankruptcy court. Cole, as a claimholder, was a "Releasing Party" under the Plan the bankruptcy court confirmed. (Docket Entry No. 2 at 3498). Cole had the opportunity to directly challenge the debtors' Plan but he failed to do so. He did not object at the Plan-confirmation hearing or appeal the Confirmation Order. The bankruptcy court dismissed Cole's motion to lift the automatic stay, without prejudice, and Cole did not file a renewed motion. Cole did not raise the jurisdictional argument until his appeal from the bankruptcy court's Order enjoining his lawsuit or arbitration. Preclusion bars Cole from raising the same claims that he could have asserted in the bankruptcy court in a subsequent lawsuit or arbitration. Travelers Indem. ,
Cole contends that preclusion should not apply to him because his claim "was so plainly beyond the Bankruptcy Court's jurisdiction that entertaining it was clearly wrong." (Docket Entry No. 6). This argument is unpersuasive. Both Travelers Indemnity and In re Davis Offshore addressed similar jurisdictional questions. And, as discussed below, the bankruptcy court did not err in exercising its jurisdiction to approve the Plan, which included Cole's and other creditors' consensual release of their claims against nondebtors, if those claims were related to the bankruptcy proceeding. Cole's was.
2. The Third-Party Release
Cole makes three arguments attacking the bankruptcy court's jurisdiction: (1) § 504 of the Bankruptcy Code prohibits releasing claims against entities that are not debtors in the bankruptcy, such as Nabors Corporate and Nabors Industries; (2) the bankruptcy court did not have "related to" jurisdiction over Cole's claims against these nondebtor entities because these claims would not affect the bankruptcy estate; and (3) even if the bankruptcy court could release claims against nondebtor entities, the release does not apply to Cole because he did not consent to the Plan. The court addresses each of these arguments separately.
*607a. The Bankruptcy Court's Releases of Nondebtors
Cole contends that a bankruptcy court cannot, in any situation, release claims against nondebtors, such as Nabors Corporate and Nabors Industries, brought by a nondebtor claimant, such as Cole. This argument is unpersuasive.
A bankruptcy court has jurisdiction to enter a final judgment on matters related to a bankruptcy proceeding.
There is a circuit split as to the scope of a bankruptcy court's power to approve a release of creditors against a nondebtor. In re Vitro S.A.B. de CV ,
*608The Fifth Circuit has concluded that a bankruptcy court may not confirm a plan that provides "non-consensual non-debtor releases." In re Vitro S.A.B. de CV ,
Cole's argument that bankruptcy courts may not approve any third-party release lacks merit. The issues are whether Cole's release was consensual and sufficiently related to the bankruptcy proceeding.
b. Cole Consented to the Plan and Nondebtor Releases
Cole argues that, even if the bankruptcy court had jurisdiction to approve a consensual nondebtor release as part of the Plan, the release of the Nabors entities does not apply to him because he did not consent by voting for the plan.
Although the Fifth Circuit treats a nonconsensual third-party release differently from a consensual one, it has not explained what "consensual" means in this context. The Fifth Circuit has treated a claimant as nonconsenting because, besides not voting for the plan, she directly challenged it before it became final. See, e.g. , *609In re Pac. Lumber Co. ,
Cole's argument raises the question whether he, a claimant who did not object to the Plan or directly appeal from the bankruptcy court's Confirmation Order before it became final, consented to a third-party release in the Plan, if, due to his failure to file a proof of claim, he was not entitled to vote on Plan confirmation.
A claimholder must file a proof of claim with the bankruptcy court before the bar date. FED. R. BANKR. P. 3002(c) ;
Although a claimholder who did not file a proof of claim within the bar-date deadline is subject to the automatic stay, that claimholder may still participate in the bankruptcy proceeding by raising objections to the bankruptcy court's orders or to the debtors' plan before confirmation. See, e.g. , In re Walker ,
The Fifth Circuit's view of a late filer's ability to appeal is restrictive. A silent late filer, like Cole, may not appeal a bankruptcy court's plan-confirmation order, even if the plan includes releases of the filer's claims against a nondebtor. This view supports Nabors Corporate and Nabors Industries's argument that Cole consented to the plan by failing to object.
The record shows, and Cole admits, that he received notice of the bankruptcy proceeding, of the deadline for filing his proof of claim, of the debtors' proposed plan, and of the hearing date. The record shows, and Cole admits, that he did not file a proof of claim before the deadline, but instead moved to lift the automatic stay. After the bankruptcy court dismissed Cole's motion without prejudice, he did not renew the motion. Cole had the opportunity to participate in the plan-confirmation hearing and to raise objections before the bankruptcy court. He did neither. Allowing the bankruptcy court to approve the Plan releases, including construing Cole's silence as consent, serves the bankruptcy law's purpose of quick and efficient resolution of claims to permit a debtor's business to continue.
*610Katchen v. Landy ,
Cole argues that he did not understand the Plan because it is long and full of complicated legal terms, and that it is unfair to find that it released his claims against the nondebtor Nabors entities. (Docket Entry No. 9 at 9-10). Cole's argument challenges the sufficiency of the notice he received of the proposed Plan. In Mullane v. Central Hanover Bank and Trust Company ,
An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. The notice must be of such nature as reasonable to convey the required information,...and it must afford a reasonable time for those interested to make their appearance. But if with due regard for the practicalities and peculiarities of the case these conditions are reasonably met[,] the constitutional requirements are satisfied.
Cole neither provides facts nor identifies evidence that the Plan misled him. The record shows that before the Plan was confirmed, Cole was represented by counsel. Cole had access to legal advice, and he was responsible for seeking legal advice on what specific Plan terms meant. Neither the Supreme Court nor the Fifth Circuit requires a debtor or a bankruptcy court to help creditors understand a proposed plan. Cole's argument is unpersuasive.
The bankruptcy court did not err in approving the third-party releases and enforcing the Plan by enjoining Cole from pursuing claims in litigation or arbitration against the released entities, including Nabors Corporate and Nabors Industries.
c. Cole's Claims Are "Related To" the Bankruptcy Proceeding
Cole argues that the bankruptcy court did not have subject-matter jurisdiction to release his claims because they are not "related to" the bankruptcy proceeding, as required by
A bankruptcy court has "related to" jurisdiction to hear a claim if "the outcome of that proceeding could conceivably have any effect on the estate being *611administered in bankruptcy." In re Chesnut ,
Claims that are essential to the debtors' bankruptcy plan and that play an important role in the debtors' successful reorganization are within the bankruptcy court's jurisdiction. See In re Wool Growers Cent. Storage Co. ,
The record supports the bankruptcy court's finding that it has "related to" jurisdiction over Cole's claims of sexual harassment, discrimination, and retaliation. Cole agreed that he was hired by the debtor, C&J Well Services. His claims are based on events that occurred during Cole's employment with the C&J Well Services.
As Cole concedes, the bankruptcy court has jurisdiction to approve the release of his discrimination and related claims against C&J Well Services. The discharge not only protects the debtor from paying damages to a prevailing plaintiff, but also protects the debtor from expensive and time-consuming discovery in litigation. Because Cole's claims were based on C&J Well Services's conduct, allowing him to proceed with his lawsuit or an arbitration, even against the affiliate or parent company, could impose costs on C&J Well Services. The costs will be significant if C&J Well Services's employees could, like Cole, pursue the same claims against its affiliates or subsidiaries that were discharged as to C&J Well Services in the bankruptcy.
The third-party release was an integral part of the Confirmation Plan. (Docket Entry No. 2 at 3706-07). The bankruptcy court's Confirmation Order stated that the third-party release was "in exchange for good and valuable consideration provided by the release parties," "a good-faith settlement and compromise," and "materially beneficial" to the debtors. (Id. ). The Order extends to claims against Nabors Industries and its subsidiaries and affiliates, including entities other than the debtors in the bankruptcy proceeding. (Id. at 3645, 3647). The bankruptcy court had "related to" jurisdiction over the released claims against these nondebtors. See, e.g. , In re Wool Growers Cent. Storage Co. ,
Relying on In re Zale Corporation ,
*613Nabors Corporate and Nabors Industries respond that Zale prohibits only nonconsensual releases, not consensual ones. (Docket Entry No. 8 at 25). Their argument is persuasive. Zale involved a settlement intended to discharge objecting creditors' claims against nondebtors. Zale and other Fifth Circuit decisions have invalidated bankruptcy plans discharging claims against third parties over the claimholders' objections to avoid an aggressive expansion of bankruptcy jurisdiction with no protection to objecting claimholders. See In re Zale Corp. ,
Cole did not object to the bankruptcy court's confirmation order or appeal it to the district court. The claimholder in Zale did object, clearly not consenting to the plan. In Zale , the released claims were based on the third parties' liabilities independent from the debtor's conduct. In absence of an indemnity agreement, the creditors could not pursue those claims against the debtor, directly or indirectly. Id. at 755-56. Zale prevents third parties from purchasing immunity in the bankruptcy proceeding for their own liabilities unrelated to the debtor's conduct. In this case, the bankruptcy court's December 2016 Confirmation Order only released claims against nondebtors that were "based on or relating to...the Debtors' [conduct,] omission, transaction, agreement, [or] event... taking place on or before the Effective Date." (Docket Entry No. 2, at 3951-52).
Cole's claims against Nabors Corporate and Nabors Industries are based on C&J Well Services's conduct. These claims could affect the bankruptcy estate, alter "the debtor's rights, liabilities, options, or freedom of action," and influence the bankruptcy administration. In re Galaz ,
B. Federal Rules of Bankruptcy Procedure 9014 and 9006
Cole argues that the bankruptcy court violated Federal Rules of Bankruptcy Procedure 9014 and 9006(d) by granting the Nabors Corporate's motion to enjoin without setting a hearing or giving Cole time to respond. (Docket Entry No. 6 at 11). Rule 9014(a) requires the bankruptcy court to give "reasonable notice and opportunity for hearing" in "contested matters" to the party against whom relief is sought. FED. R. BANKR. P. 9014. The Second, Ninth, and Eleventh Circuits have found that motions for violations of a plan injunction are "contested matters" governed by Rule 9014. In re Kalikow ,
On August 23, 2018, Nabors Corporate moved to enforce the Confirmation Order. (Docket Entry No. 2 at 1). Six days later, the bankruptcy court granted the motion, enjoining Cole from "pursuing any and all claims against the debtors and other released parties." (Id. at 2501). Cole did not respond before the bankruptcy court granted the motion. The bankruptcy court did not hold a hearing or issue an order *614shortening the time required for Cole to respond. Cole contends that the bankruptcy court violated Rule 9006.
Nabors Corporate argues that the court did not err in ruling on the motion without a hearing. The bankruptcy court has flexibility and discretion to decide when a full hearing is required. (Docket Entry No. 8, at 28 citing Int'l Transactions, Ltd. v. Embotelladora Agral Regiomontana,S.A. de CV ,
Even if the bankruptcy court violated Rule 9014 and Rule 9006(d) by deciding Nabors Corporation's motion before Cole's time to respond expired, the error is harmless. FED. R. BANKR. P. 9005 (adopting the harmless-error rule); In re Age Ref., Inc. ,
IV. Conclusion
The bankruptcy court's August 2018 Order Enforcing Confirmation Order and Plan Injunction Against John Cole is affirmed. This case is dismissed. An order of dismissal is separately entered.
Nabors Red Lion Limited was a wholly owned subsidiary of Nabors Industries, Ltd. Nabors Red Lion merged with C&J Energy Services, Inc. in March 2015, and became C&J Energy Services, Ltd. After this merger, C&J Well Services became a wholly owed subsidiary of C&J Energy Services, Ltd, and was indirectly owned by Nabors Industries.
The relevant case number is 5:16-cv-1168.
The Confirmation Order provides that "Released Party" includes Nabors Industries and its "current and former Affiliates and subsidiaries." (Docket Entry No. 2 at 3645, 3647, 3919).
Cole did not challenge the bankruptcy court's jurisdiction based on Article III of the Constitution. In Stern v. Marshall ,
In Dow Corning , the Sixth Circuit affirmed a bankruptcy court's approval of a confirmation plan discharging nonconsenting creditors' claims against a third party. In re Dow Corning Corp. ,
The bankruptcy court also suggested that it may have jurisdiction to approve a plan discharging a nonparty if the action "belong[s]to the estate or its proper successors pursuant to a plan" or it may "prevent undermining the efficacy of the plan and its distribution scheme." In re Camp Arrowhead, Ltd. ,
Cole raised this argument for the first time before this court. Cole argues that he did not have the opportunity to raise this argument before the bankruptcy court because the court granted the debtor's motion to enjoin within 6 days after it was filed and without a hearing.
Cole's complaint filed in the Western District of Texas is brief. He alleged that "[Nabors Industries and Nabors Corporate] have been an 'employer' within the meaning of Title VII, Texas Commission of Human Rights Act, and 42 U.S.C.§ 1981," and that Cole's supervisor, Jacky Richardson, created a hostile work environment by making severe and pervasive discriminatory comments based on Cole's sex. Cole also alleged that Richardson sexually assaulted him. The complaint did not detail Cole's or Richardson's employment relationships with Nabors Industries and Nabors Corporate. (Docket Entry No. 2 at 4062-63).
Cole alleged that C&J Well Services would not be liable to indemnify Nabors Corporate and Nabors Industries if he prevailed on these claims. (Docket Entry No. 6 at 17). But it is unclear whether the Nabors entities have indemnity agreement with C&J Well Services or other bases for contribution, and they could be jointly and severally liable to Cole with C&J Well Services. Indemnification, at least, is conceivable.
Before this action, the bankruptcy court issued an order enjoining another prior employee of C&J Well Services from bringing claims against Nabors Corporate and Nabors Industries. (Docket Entry No. 2 at 7325-27).
Reference
- Full Case Name
- IN RE: CJ HOLDING CO., Debtors. John Cole v. Nabors Corporate Services, Inc.
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- 3 cases
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- Published