ANDREW S. HANEN, District Judge.
Before the Court is Defendants Montana Resources, Inc. and Montana Resources, LLP's Post-Discovery Motion for Summary Judgment [Doc. Nos. 282 (redacted version) & 284 (filed under seal)]. Plaintiffs ASARCO, LLC and ASARCO Master, Inc. filed their Response and Opposition [Doc. No. 288], and Defendants have filed their Reply in Support [Doc. No. 292]. For the following reasons, the Court hereby
In its previous Summary Judgment Opinion [Doc. No. 227], the Court provided a comprehensive history of this case. The Court partially reproduces this history below as sections (I)(A)-(C) and (II)(A).
On May 31, 1989, AR Montana Corporation (hereinafter "AR Montana"), the alleged predecessor to ASARCO Master, Inc. (hereinafter "ASARCO Master") and a special purpose subsidiary of ASARCO, LLC, entered into a Partnership Agreement with Montana Resources, Inc. (hereinafter "MRI") to create Montana Resources, a general partnership. [Doc. Nos. 46 ¶ 1; 176 at 3]. Montana Resources operated and developed certain mining facilities in Butte, Montana. [Doc. No. 282-1 at 16-17]. MRI initially possessed a 50.1% interest in the partnership, while AR Montana received the remaining 49.9%. [Id. at 18].
According to the terms of the Agreement, the partners would be liable for "Cash Calls," if necessary, to cover the partnership's expenses. If one of the partners did not pay a Cash Call when due and failed to remedy the nonpayment within 30 days, it would be in default. Additionally, the filing of a bankruptcy petition was an event of default. The contract terms provided that, in relevant part,
[Doc. No. 282-1 at 40-41]. Under the contract, "[u]pon the occurrence of an Event of Default" the defaulting partner would lose the "right to participate in the management and control of the Partnership," voting rights, and income and cash distributions from the Partnership "until a Reinstatement or cure has occurred." [Id. at 41].
The Agreement also allowed for the dilution of a partner's interest if a partner defaulted with respect to the payment obligations. [Id.]. The Non-Defaulting Partner had three remedies it could pursue "at any time during the Event of Default and prior to Reinstatement or cure." [Id.]. They were:
[Id. at 42-43]. Additionally, the reinstatement provision provided:
[Id. at 43]. The references above in Section 12.02 to "Section 12.01(a) or Section 12.01(b)(i)" were incorrect—Section 12.01(a) does not refer to deeming a partner to be in default and Section 12.01(b)(i) does not exist. [Id.]; [Doc. No. 292-1 at 205:5-18]; [Doc. No. 180-4 at 128:9-129:12]. From October 2002 to December 2003, AR Montana suffered successive defaults on its Cash Call obligations until its voting and distribution rights were diluted to 0% on December 9, 2003. [Doc. Nos. 46 ¶¶ 12-15; 169-12]. Plaintiffs claim that once their rights were reduced to 0%, MRI "purported to dissociate" AR Montana from Montana Resources. [Doc. No. 46 ¶ 16]. At that time, MRI entered into a "Second Amended and Restated Partnership Agreement" for "Montana Resources, LLP f/n/a Montana Resources" with a new partner, MR Holdings, LLC. [Doc. No. 197 at 1-2]. The Agreement specified that it was "continu[ing] a partnership" that would become "Montana Resources, LLP" upon registration with the Montana Secretary of State. [Id. at 5]. The Montana Secretary of State registered Montana Resources, LLP (hereinafter, "MRLLP") on January 8, 2004. [Doc. No. 170-10].
AR Montana allegedly merged into ASARCO Master in 2005. [Doc. No. 46 ¶ 18]. Later that year, ASARCO, LLC and its affiliates, including ASARCO Master, filed voluntary bankruptcy petitions in the United States Bankruptcy Court for the Southern District of Texas (the "underlying bankruptcy case"). [Id.]; In re ASARCO, LLC, No. 05-21207, 2009 WL 8176641 (Bankr. S.D. Tex. Jun. 5, 2009).
[Id.]. Soon thereafter, the underlying bankruptcy case concluded. In re ASARCO, LLC, 420 B.R. 314 (S.D. Tex. 2009). No party presented to either the bankruptcy court at the time or to this Court a written settlement agreement or release, and no party now claims that one controls the current proceeding.
On November 15, 2011, approximately two years after the conclusion of the Adversary Proceeding and the issuance of the Bankruptcy Plan Confirmation Order, Plaintiffs sent Defendants a letter invoking an alleged right to reinstatement into MRLLP. [Doc. No. 192 at 28-29]. Plaintiffs fully tendered the amount that they believed they owed the partnership pursuant to their reading of the Reinstatement Provision for the 2002-2003 Cash Call defaults. [Id.]. Plaintiffs additionally notified MRI that they would give MRI five days to accept the tender or consent to accepting it and would consider MRI's lack of compliance with their demand to be a breach of the Partnership Agreement and commence suit. [Id.]. Defendants neither accepted the tender nor responded. [Doc. No. 46 ¶ 22].
Plaintiffs initiated this suit in the United States District Court for the District of Montana approximately two and a half weeks after their stated deadline expired. [Doc. No. 1]. Afterwards, they filed their First Amended Complaint ("Complaint"). [Doc. No. 46]. In it, they asserted that Defendants breached the Partnership Agreement by failing to accept Plaintiffs' tender and reinstate them into the partnership. [Id. ¶ 22]. Defendants filed a Motion to Dismiss claiming that Plaintiffs lacked standing to bring the case and were barred by res judicata and judicial estoppel from bringing all claims that existed before the bankruptcy but were undisclosed in the bankruptcy. [Doc. No. 78 at 2-3]. The case was transferred to this Court by the United States District Court for the District of Montana. [Doc. No. 57]. Subsequently, this Court ruled on Defendants' Motion to Dismiss. [Doc. No. 104]. In summary, it ruled that all claims that existed pre-bankruptcy were barred, but that the breach of the contractual reinstatement claim had not accrued before the bankruptcy. ASARCO, LLC v. Mont. Res., Inc., 514 B.R. 168, 179 (S.D. Tex. 2013). Consequently, the breach of contract suit solely based upon that provision could continue. The only remaining claims therefore are based on the November 2011 alleged breach of contract, for which Plaintiffs request declaratory and equitable relief. [Doc. No. 46 ¶¶ 24-31].
Defendants then filed an Amended Motion for Summary Judgment, alleging different theories upon which summary judgment should be granted: (1) two different statutes of limitations bar the current suit; (2) the breach of contract claim existed pre-bankruptcy so Plaintiffs lack standing to bring it and are barred by res judicata and judicial estoppel from asserting it now; (3) Plaintiffs were never partners in MRLLP and so cannot assert a right to reenter into it; (4) the general partnership known as "Montana Resources" was dissolved and thus no longer exists; (5) ASARCO Master lacks standing to assert a claim because the Supplemental Confirmation Order required ASARCO, LLC to wind down ASARCO Master; (6) the Partnership Agreement's terms unambiguously lack a right to reinstatement after cure; and (7) in the alternative, if a right to reinstatement exists, the contract language only allows Plaintiffs to reinstate into their lowest percentage interest of 1.23%. [Doc. No. 176 at i-ii].
This Court issued an opinion granting in part and denying in part Defendants' first Motion for Summary Judgment [Doc. No. 227]. The Court denied summary judgment on all grounds
The Court certified the case for interlocutory appeal. [Doc. No. 228]. The parties appealed the Court's Summary Judgment Opinion, and the Fifth Circuit affirmed this Court's decision. ASARCO, L.L.C. v. Montana Res., Inc., 858 F.3d 949 (5th Cir. 2017). In the opinion, the panel held that claim preclusion did not bar the breach of contract claim and that the Court did not abuse its discretion where it did not judicially estop Plaintiffs from bringing suit. Id. at 952. The Fifth Circuit declined to address whether the right to reinstatement "rode through" the bankruptcy. Id.
The Defendants filed their Post-Discovery Motion for Summary Judgment, alleging three new grounds for summary judgment. [Doc. No. 284].
First, Defendants argue that "neither Plaintiff [ASARCO Master or ASARCO, LLC] had any actual rights to assert when they sent the November 15, 2011 letter demanding reinstatement" because ASARCO, LLC has never been a partner under the Agreement. [Doc. No. 284 at 4]. Defendants argue that ASARCO Master did not obtain rights from its predecessor for two reasons: AR Montana did not seek MRI's consent to transfer its rights to ASARCO Master, a requirement under the Agreement and under Montana partnership law, and neither AR Montana nor ASARCO Master complied with the prerequisites for transfer under the Partnership Agreement, so any purported transfer was invalid. [Doc. No. 284 at 4]. Further, Defendants allege that ASARCO Master was wound down according to the terms of the Bankruptcy Plan and that wound-down entities cannot receive assets post-bankruptcy. [Id. at 25].
Defendants also allege that when ASARCO Master filed for bankruptcy, it defaulted under Section 11(d) of the Agreement; thus, even if the Court permitted Plaintiffs to cure the Cash Calls, Defendants allege that default under Section 11(d) is incurable and would still prohibit Plaintiffs' reinstatement. [Id.]. Last, Defendants contend that two newly discovered drafts of the Partnership Agreement make the meaning of the default clause "clear and unambiguous" and compel a judgment in their favor as a matter of law. [Id.].
The Court will address each of these arguments in turn.
Summary judgment is warranted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). "The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact." Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-25 (1986)). Once a movant submits a properly supported motion, the burden shifts to the nonmovant to show that the Court should not grant the motion. Celotex Corp., 477 U.S. at 321-25. The non-movant then must provide specific facts showing that there is a genuine dispute. Id. at 324; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court must draw all reasonable inferences in the light most favorable to the nonmoving party in deciding a summary judgment motion. Id. at 255.
Defendants argue that neither ASARCO, LLC nor ASARCO Master has ever held an interest in the Montana Resources Partnership and therefore cannot be reinstated under the Partnership Agreement. [Doc. No. 284 at 4]. Defendants claim that ASARCO, LLC was simply never a partner under the Agreement and that if it was never a partner, it had no grounds for reinstatement when it sent the November 2011 demand letter. [Id.]. Defendants also claim that "ASARCO Master never actually succeeded to its predecessor-in-interest's rights under the Agreement because it never satisfied the terms of the Agreement" and because "ASARCO Master was wound down, under the terms of the [bankruptcy] Plan." [Id.]. If either proposition is true, then ASARCO Master would be barred from recovery as a matter of law.
Turning first to ASARCO, LLC's pre-bankruptcy rights, Plaintiffs provide evidence that Defendants admitted in the bankruptcy proceedings that ASARCO, LLC was a party to the Partnership Agreement. [Doc. No. 194, Ex. 16 at 3]. Plaintiffs claim that Defendants'"Proof of Claim of Montana Resources, Inc. Against ASARCO LLC" demonstrates that Defendants sought to hold ASARCO, LLC liable under the Partnership Agreement and therefore have admitted that ASARCO, LLC has rights under the Partnership Agreement. [Id.]. In their Proof of Claim, Defendants stated:
[Doc. No. 194, Ex. 16 at 3-4] (emphasis added). Plaintiffs claim that when Defendants sought damages from ASARCO, LLC during the bankruptcy proceedings, they admitted that ASARCO, LLC was a party to the Partnership Agreement. [Doc. No. 288 at 17 n.9]. Additionally, Plaintiffs point out that Defendants received $38,779,255 as a result of their claims against ASARCO, LLC. [Id.]. Now that ASARCO, LLC seeks damages from Defendants, Plaintiffs argue that Defendants cannot make claims that are contrary to their previous filings; and accordingly, these claims are "barred by waiver, estoppel and judicial estoppel." [Doc. No. 288 at 19].
Plaintiffs do not provide case law to support their assertion that Defendants are estopped from claiming that ASARCO, LLC has no rights to the Partnership Agreement; as such, the Court pauses here to describe the doctrines of waiver, estoppel and judicial estoppel. Waiver "is the voluntary or intentional relinquishment of a known right." Pitts ex rel. Pitts v. Am. Sec. Life Ins. Co., 931 F.2d 351, 357 (5th Cir. 1991) (citing Gen. Elec. Supply Co. v. Utley-James of Tex., Inc., 857 F.2d 1010, 1013 n.1 (5th Cir. 1988)). In other words, the doctrine of waiver may only be applied where a party has knowingly forfeited the right to assert an argument or a defense. See Gen. Elec., 857 F.2d at 1013. Estoppel, on the other hand, arises when "one party has reasonably relied on the conduct or statements of another; if the relying party suffers harm as a result of this reliance, the inducing party can be estopped from disavowing his earlier conduct or statement." Salzstein v. Bekins Van Lines, Inc., 993 F.2d 1187, 1191 (5th Cir. 1993) (first citing Bennett v. Allstate Ins. Co., 950 F.2d 1102, 1107-08 (5th Cir. 1992); and then citing Pitts, 931 F.2d at 357). "In contrast to waiver, then, estoppel involves some element of reliance or prejudice on the part of the" complaining party. Pitts, 931 F.2d at 357. Relatedly, the doctrine of judicial estoppel prevents parties from "asserting a position in a legal proceeding that is contrary to a position previously taken" in either the same or an earlier proceeding. Hall v. GE Plastic Pac. PTE Ltd., 327 F.3d 391, 396 (5th Cir. 2003) (quoting Ergo Sci., Inc. v. Martin, 73 F.3d 595, 598 (5th Cir. 1996)). Two bases of judicial estoppel must be satisfied before applying the doctrine. Hall, 327 F.3d at 396. The doctrine may be applied only where (1) "the position of the party to be estopped is clearly inconsistent with its previous one" and (2) that party has "convinced the court to accept that previous position." Ahrens v. Perot Sys. Corp., 205 F.3d 831, 833 (5th Cir. 2000).
Although failing to go through the analysis, Plaintiffs contend that Defendants are judicially estopped from claiming that ASARCO, LLC has no rights under the Agreement because (1) during the bankruptcy proceedings, Defendants sought damages from ASARCO, LLC, claiming that it owed money due to its partnership obligations and (2) Defendants received $38,779,255 as a result of their claims against ASARCO, LLC. [Doc. Nos. 194, Ex. 16 at 3; 288 at 17 n.9]. Upon review of the record and evidence submitted by the parties, the Court acknowledges that the bankruptcy court signed a Stipulation and Order on August 25, 2009, accepting Defendants' Proofs of Claim and confirming a settlement agreement between the parties. [Adv. No. 07-02024, Doc. No. 212]. The Stipulation and Order in relevant part reads:
[Id.]. Thus, Defendants seemingly convinced the bankruptcy court to accept their position that ASARCO, LLC was arguably liable under the Partnership Agreement and received $38,779,255 as a result of these claims.
At this time, the Court declines to rule as a matter of law which, if any, of these concepts apply but regardless finds that due to its claims in the bankruptcy court, Montana Resources is either estopped or, at the very least, has created an issue of material fact. Consequently, summary judgment is not warranted where Defendants themselves have created an issue of fact by taking inconsistent positions in their filings.
Next, Defendants claim that ASARCO Master was never a partner under the Partnership Agreement because AR Montana and ASARCO Master did not merge. [Doc. No. 284 at 18]. Defendants additionally allege that, regardless of the purported merger, AR Montana and ASARCO Master failed to comply with the transfer provisions of the Partnership Agreement and consequentially ASARCO Master acquired no rights to the Partnership Agreement pre-bankruptcy. [Id.].
Defendants argue that Plaintiffs have not submitted admissible summary judgment evidence proving that ASARCO Master merged with AR Montana, thereby gaining whatever rights AR Montana had under the Partnership Agreement. [Doc. No. 292 at 11]. Defendants conclude that if ASARCO Master was not a partner before the bankruptcy, it cannot invoke the reinstatement provision in the Partnership Agreement. [Id.].
In response, Plaintiffs offer testimony from Jorge Lazalde Psihas ("Mr. Lazalde") in his capacity as Executive Vice President-Legal and General Counsel of ASARCO, LLC that the merger between AR Montana and ASARCO Master occurred pre-bankruptcy and conclude that ASARCO Master possessed all of AR Montana's partnership rights. [Doc. No. 288 at 25]. Defendants dispute the admissibility of this evidence because they argue that it is not based on Mr. Lazalde's personal knowledge.
In his deposition, Mr. Lazalde testified that AR Montana became ASARCO Master through merger. [Doc. No. 292-1 at 27:7-8]. Mr. Lazalde testified that he has worked for ASARCO since "[t]he end of 2009" and that he became General Counsel of ASARCO, LLC on February 28, 2010. [Doc. Nos. 292-1 at 16:1-3; 82 at 1]. Plaintiffs allege that ASARCO Master merged with AR Montana before the bankruptcy action which was filed in 2005. [Doc. No. 288 at 18-19].
Mr. Lazalde's testimony, in its present form, is inadmissible as evidence of any merger because Plaintiffs have not explained how Mr. Lazalde could have personal knowledge of a merger that occurred years before he was employed. See FED. R. CIV. P. 56(c)(4). Federal Rule of Civil Procedure 56(c)(4) states:
Since the merger occurred before Mr. Lazalde's employment with ASARCO, LLC, and since Plaintiffs have not explained the source of his knowledge, this Court presumes it comes from business records. Even so, Plaintiffs have failed to provide any business records in proper form to support Mr. Lazalde's contention. Absent some explanation and proof of the source of the witness' knowledge, the Court does not find him to be a competent witness on this topic and refuses to consider Mr. Lazalde's testimony as proffered for purposes of summary judgment on the pre-bankruptcy merger issue.
Nevertheless, Plaintiffs argue that Defendants are judicially estopped from claiming that the merger did not take place because Defendants filed a Proof of Claim against ASARCO Master, asserting that the company merged with AR Montana. [Doc. No. 288 at 19]. As previously stated, a court may apply the doctrine of judicial estoppel where a party (1) attempts to assert a position that is clearly inconsistent with its previous position and (2) has convinced a prior court to accept that previous position. See Ahrens, 205 F.3d at 833. In their "Proof of Claim of Montana Resources, Inc. Against ASARCO Master, Inc." ("Proof of Claim"), Defendants stated, "AR Montana Corporation was subsequently merged into and its liabilities were assumed by Debtor, ASARCO Master, Inc." [Doc. No. 194, Ex. 16 at 14]. As noted above, the Court need not rule as to whether Defendants are judicially estopped at this juncture. It is sufficient to note that, given these statements, this Court cannot grant summary judgment. A genuine issue of material fact exists where Plaintiffs provide evidence that Defendants previously claimed that ASARCO Master is a successor to AR Montana and that the bankruptcy court relied on this assertion.
Defendants allege that even if the AR Montana/ASARCO Master merger occurred, ASARCO Master failed to become a partner because MRI never consented to the transfer and because neither the transferor (AR Montana) nor the transferee (ASARCO Master) complied with the Agreement's prerequisites for transfer of partnership rights. [Doc. No. 284 at 18]. Section 16.02 of the Partnership Agreement governs transfers of partnership rights.
[Doc. No. 282-1 at 52-53]. Defendants contend that Plaintiffs did not meet these prerequisites for transfer. [Doc. No. 284 at 18]. Plaintiffs respond that Section 16 of the Partnership Agreement does not apply in the event of a merger because "Section 16 requires a transferring partner to survive the transfer but in a merger . . . the transferring partner does not and cannot survive." [Doc. No. 288 at 18]. Plaintiffs do not cite case law to support this interpretation.
Plaintiffs also cite a number of cases that they claim support the idea that "a merger does not constitute a violation of an anti-assignment clause because a `merger' does not even constitute a `transfer' for purposes of an anti-assignment provision." [Id. at 17]. The Court disagrees with Plaintiffs' first contention. Plaintiffs cite cases that are distinguishable from the one at hand. First, none of these cases purport to interpret Montana law.
While the Court does not necessarily agree with Plaintiffs' contention that Section 16, or at least Section 16.01, of the Partnership Agreement does not apply to mergers, the Court finds that, at the very least, a question of fact remains regarding whether Plaintiffs held rights under the Agreement due to Defendants' prior claims in the bankruptcy case. [See Doc. No. 194, Ex. 16 at 14].
Defendants additionally argue that ASARCO Master cannot be a successor-in-interest to the Partnership Agreement because Montana law does not allow a third party to become a partner without the other partner's consent, and "[r]egardless of any purported merger, it is undisputed that MRI never provided consent for ASARCO Master (or ASARCO LLC) to become a partner under the Agreement." MONT. CODE ANN. § 35-10-401(9) (West 2017) ("A person may become a partner only with the consent of all the partners."); [Doc. No. 284 at 18]. Plaintiffs provide no evidence directly disputing the lack of consent; however, Plaintiffs again argue that the Proof of Claim evidence described above compels the conclusion that Defendants should be judicially estopped from claiming that Plaintiffs had no rights to the Agreement pre-bankruptcy.
Indeed, a jury could reasonably conclude that Defendants' Proof of Claim indicates that Defendants did accept the transfer of AR Montana's Partnership Interest(s), notwithstanding Plaintiffs' alleged failure to comply with the transfer requirements set out in the Agreement. [See Doc. No. 194, Ex. 16 at 14]. The Proof of Claim, in relevant part, reads:
[Doc. No. 194, Ex. 16 at 14-16] (emphasis added). Thus, Defendants have claimed that ASARCO Master is "contractually required to reimburse MRI" and that AR Montana's liabilities were assumed by ASARCO Master. These are clear references to liability under the Partnership Agreement and create, at the very least, a factual dispute as to whether Defendants allowed ASARCO Master into the partnership. As stated above, Plaintiffs contend that Defendants should be estopped from taking a contradictory position where Defendants have previously represented to a court that ASARCO Master assumed rights and liabilities under the Partnership Agreement. [Doc. No. 288 at 19]. While this Court is not prepared at this juncture to grant Plaintiffs' request as a matter of law, similar to the discussion above regarding the Proof of Claim Defendants filed against ASARCO, LLC, the Court cannot grant summary judgment in Defendants' favor where they have previously claimed that ASARCO Master is a party to the Partnership Agreement. Their own pleadings have created, at the very least, a fact issue.
Finally, even if Defendants are correct that AR Montana could not confer (and ASARCO Master could not gain) partnership status without first complying with Section 16 of the Agreement, Plaintiffs may have held some interest in the partnership or its assets pre-bankruptcy.
While Montana partnership law prohibits the transfer of a partner's partnership status without the consent of all non-transferring partners, it does not prohibit transfer of other types of partnership interests.
Moreover, the terms of the Agreement arguably support the idea that Plaintiffs might have a claim to some interest other than partnership status. Section 3 of the Partnership Agreement defines "Partnership Interests" as follows:
[Doc. No. 282-1 at 17]. This section describes each partner's interest in the various assets, and liabilities, but makes no mention of voting rights, governance, or other ownership interests. Section 12.01(d)(ii)(B) of the Agreement—the Default, Dilution, and Cure provision—describes how a defaulting partner has its Partnership Interest reduced and how it incrementally loses the right to "exercise voting power and to receive distributions" under the Agreement. The reinstatement provision, on the other hand, describes the possibility that upon curing the default, the defaulting partner can regain voting rights and cash distributions in proportion to the lowest Partnership Interest that it held prior to default. It does not explicitly state that the defaulting partner regains its Partnership Interest—only its "voting power" and its entitlement to receive "cash distributions and other income allocations" in proportion to the lowest Partnership Interest that it held prior to the failure to pay a Cash Call. [Doc. No. 282-1 at 38]. The varying language describing the interests a defaulting partner could lose upon default when compared to the interests it could regain after reinstatement could be read as an indication that different interests within the "partnership package" may be separated out.
Accordingly, the Agreement itself appears to differentiate between voting rights and cash distributions separate and apart from an actual ownership interest. This partnership agreement fails to clearly enumerate what was lost upon AR Montana's alleged default, and what (if anything) is left for Plaintiffs to regain upon reinstatement. This Court has already held that the default and cure provisions of the Partnership Agreement are ambiguous as a matter of law.
Given the prior representations made by Defendants in the bankruptcy case and given that the parties have not proven as a matter of law that ASARCO Master is explicitly precluded from holding some other interest under Montana law, this Court finds that an issue of material fact precludes summary judgment on the issue as to whether Plaintiffs held no rights to the partnership or its assets pre-bankruptcy.
Setting aside the issue of whether the Partnership Agreement is an executory or non-executory contract,
Defendants' first argument on this point regarding ASARCO Master's alleged liquidation will be addressed in Part (iii)(b) infra. Defendants' second and third arguments, that ASARCO Master failed to provide notice that it intended to assume, nor did it properly assume the Agreement during the bankruptcy proceedings because it did not cure or make a "firm commitment" to cure any delinquent payments, are predicated on the assumption that there was a default that needed curing in the first instance. Defendants cite 11 U.S.C. § 365(b)(1)(A)-(C), which outlines the steps a debtor must take to assume an executory contract in default. [Doc. No. 284 at 21]. The Code states,
11 U.S.C. § 365(b)(1)(A)-(C). Plaintiffs do not dispute that they (or the Trustee) failed to comply with this statute. Nevertheless, in their previous filings, Defendants argued that that they cured Plaintiffs' default. [Doc. No. 176 at 50]. If Defendants cured Plaintiffs' default, then there was no default for ASARCO Master or the Trustee to cure (or commit to cure) post-bankruptcy. Plaintiffs, on the other hand, claim that they are still in default. [Doc. 190 at 60-61]. If Plaintiffs are still in default, then an argument exists that ASARCO Master was required to promptly cure (or commit to cure) the default. As the Court stated in its prior Summary Judgment Opinion, "[o]ne of the main factual disputes in this case is whether Defendant MRI's `cures' remedied AR Montana's default on the contract." [Doc. No. 227 at 24]. Accordingly, a fact issue again precludes the Court from granting summary judgment as to whether ASARCO Master was required to cure the default in order to properly assume the Partnership Agreement.
Last, Defendants offer the deposition of Mark Roberts, the Plan Administrator, as proof that ASARCO Master failed to assume the Partnership Agreement as an asset. [Doc. No. 284 at 20]. In his deposition, Mr. Roberts stated that he did not assign "anything" to ASARCO, LLC under the terms of the Bankruptcy Plan,
[Id.]. The Court agrees that this evidence is not dispositive. After reviewing the evidence in the record including the previously discussed admissions in the bankruptcy record, the Court finds that an issue of fact remains regarding whether Plaintiffs appropriately assumed the Partnership Agreement.
Although the Court again declines to classify the Partnership Agreement as a matter of law, it will address Defendants'"ride through" doctrine arguments because, contrary to the Defendants' position, both executory and non-executory contracts can "ride through" bankruptcy. Defendants argue that it is impossible for the Partnership Agreement to have passed through bankruptcy for three reasons: (1) neither ASARCO, LLC nor ASARCO Master possessed rights under the Agreement pre-bankruptcy, and the ride through doctrine cannot create rights that did not exist pre-bankruptcy; (2) ASARCO Master was liquidated under the plan and agreements cannot ride through a liquidated entity; and (3) "a contract that purportedly rode through the bankruptcy case, instead of being assumed, would not `cure' a default in the agreement premised on the filing of bankruptcy." [Doc. No. 284 at 24]. Each of these arguments turns on a question of fact, and the relevant facts are disputed.
The court in In re JZ L.L.C. discussed the applicability of the ride through doctrine to executory and non-executory contracts in a debtor's bankruptcy estate. 371 B.R. 412, 425 (B.A.P. 9th Cir. 2007) (discussing whether the ride through doctrine survived amendments to the Bankruptcy Code). There are three choices a trustee of a debtor's bankruptcy estate may make with an executory contract: assumption, rejection, or no action. If the trustee takes no action or cannot take any action, "a contract may `ride through'" the bankruptcy. COLLIER ON BANKRUPTCY ¶ 365.03[6] (16th ed. 2015). In In re JZ L.L.C., the court explained that the ride through doctrine allows a contract to continue in effect where there was a failure to affirmatively assume or reject an executory contract. 371 B.R. at 423. The court then pointed out that "the boundary between executory and non-executory is vague." Id. Contracts that are non-executory need not be assumed to remain in effect and are typically disclosed as assets or liabilities in bankruptcy. Id. at 425. Thus, the court concluded, executory and non-executory contracts may ride through bankruptcy, notwithstanding rejection or failure to provide notice. See id.
Following a Chapter 11 bankruptcy, the Fifth Circuit in In re O'Connor determined that a partnership agreement was an executory contract, not assumable under Louisiana law, but rode through the bankruptcy. 258 F.3d 392, 405 (5th Cir. 2001). The parties did not dispute whether the contract was executory, and the panel adopted that characterization. Id. at 400. The court determined that the partnership agreement was neither assumed nor rejected because the wording in the bankruptcy plan implied "that something more than plan-confirmation is necessary for assumption," and the necessary steps were not taken. Id. at 401. The court then held that the contract was not assumable because it fell into the exception in 11 U.S.C. § 365(c)(1), which provides,
258 F.3d at 402 (ellipses in the original). In other words, even where the agreement itself restricts a partner's ability to transfer its partnership rights, the assumable-nature of the contract is subject to "applicable" (i.e., state) law. See id. (applying Louisiana partnership law).
Defendants' first argument—that ASARCO Master cannot be reinstated under the Partnership Agreement because it was never a party to the Agreement—is discussed above in Part (IV)(A)(ii). As stated above, the Court finds that there is a factual dispute regarding whether AR Montana merged with ASARCO Master.
Next, Defendants argue that it is impossible for the Partnership Interest to have passed through bankruptcy because even if ASARCO Master and AR Montana merged, ASARCO Master was liquidated under the Bankruptcy Plan. [Doc. No. 284 at 19, 24]. Plaintiffs disagree, stating that the Supplemental Confirmation Plan allowed the debtor/Trustee to delay or modify the wind down procedures. [Doc. No. 288 at 25]; [Supplemental Confirmation Plan, Adv. No. 05-21207, Doc. No. 13369]. Plaintiffs offer Mr. Lazalde's declaration as evidence that ASARCO Master was never wound down. [Doc. No. 288 at 25]. In his declaration Mr. Lazalde stated,
[Doc. No. 82 at ¶ 18].
The Court finds this evidence admissible. While Mr. Lazalde cannot (without further elucidation) testify to any decision-making that occurred prior to his employment in late 2009, he can testify that ASARCO Master was in existence in late 2009 when he began working and remains in existence today. The existence of the company is, at the very least, circumstantial evidence that the company was not wound down or liquidated prior to his tenure. The Court denies summary judgment on this point.
Defendants' final argument, that "a contract that purportedly rode through the bankruptcy case, instead of being assumed, would not `cure' a default in the agreement premised on the filing of bankruptcy," refers to Section 11(d) of the Partnership Agreement. [Doc. No. 284 at 24]. Section 11(d) states that a voluntary petition for bankruptcy is an act of default; thus, Defendants argue, even if the Court finds that Plaintiffs or Defendants cured or had the right to cure the Section 11(a) (Cash Call) default, a default under Section 11(d) is incurable and would prohibit Plaintiffs' reinstatement. [Doc. No. 282-1 at 41].
As previously stated, Defendants are correct that filing for bankruptcy is an act of default; however, the effect of that default remains unclear. Again, the Partnership Agreement controls; Section 12.01 states:
[Doc. No. 282-1 at 41-42] (emphasis added). Thus, as is clear from the express language, a bankrupt partner loses its rights to (1) participate in management and control, and (2) exercise its voting rights or to receive an allocation of income or cash. [Id.]. It does not lose its "Partnership Interest" unless it is diluted under Section 12.01(d)(ii)(B), and even that is subject to whatever reinstatement rights are conferred by Section 12.02. According to the Partnership Agreement, a partner who has defaulted due to bankruptcy has the right to be reinstated. In sum, these provisions essentially require this Court to find that a fact issue exists, as it has with all other arguments requiring an analysis of the interplay between Sections 11 and 12.
Indeed, Section 11(a) (describing default upon failure to meet the Cash Calls) and Section 11(d) (describing default upon petition for bankruptcy) are two paths that converge at the same point; both default provisions require the Court to interpret Section 12, the reinstatement provision. The Court has already held that Section 12 of the Partnership Agreement is ambiguous; therefore, this final argument also presents a factual issue. [Doc. No. 227 at 29-30]. This is especially true given the position Defendants took in the bankruptcy court filings.
As the Court pointed out previously, it "cannot conclude as a matter of law that AR Montana was in default, given that Defendants now have taken the position that they cured the defaults and given the drafting flaws in the contract." [Doc. No. 227 at 24].
Finally, Defendants contend that two newly discovered drafts of the Partnership Agreement make the meaning of the default clause "clear and unambiguous" because these newly discovered drafts rectify the internal inconsistencies in the final Partnership Agreement. [Doc. No. 284 at 2]. According to Defendants, "[t]he newly discovered drafts of the Agreement . . . eliminate any possible ambiguity and confirm Plaintiffs have no reinstatement right" because the earlier drafts show that AR Montana's then-counsel committed a "drafting error when revising the April 21, 1989 draft to create the near final April 24, 1989 draft." [Id. at 2, 10]. In its previous order, the Court found that the final draft of the Partnership Agreement contains "dead ends"
Under the Montana law governing contract interpretation, "[t]he whole of a contract is to be taken together so as to give effect to every part if reasonably practicable, each clause helping to interpret the other." MONT. CODE ANN. § 28-3-202 (West 2015). "The language of a contract is to govern its interpretation if the language is clear and explicit and does not involve an absurdity." Id. § 28-3-401. "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone if possible," subject to other statutory requirements. Id. § 28-3-303. "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." Id. § 28-3-301.
"[W]hether an ambiguity exists in a contract is a question of law." Mary J. Baker Revocable Tr. v. Cenex Harvest States, Coops., Inc., 164 P.3d 851, 857 (Mont. 2007). The Montana Supreme Court has held that "[a]n ambiguity exists when the contract language, taken as a whole, could reasonably be given two different meanings." Krajacich v. Great Falls Clinic, LLP, 276 P.3d 922, 928 (Mont. 2012). In interpreting a contract, "if the court finds the language to be unambiguous, then the plain language of the contract will govern, and the court can look no further;" however, "[i]f the court finds that contract language is ambiguous, it may consider extrinsic or parol evidence to resolve the ambiguity." Anaconda Pub. Schs., Bd. of Trs. of Anaconda Sch. Dist. No. 10 v. Whealon, 268 P.3d 1258, 1262 (Mont. 2012). Ambiguity is an objective standard. Mary J. Baker Revocable Tr., 164 P.3d at 857.
As the Court held in its previous order, the reinstatement provision is ambiguous as a matter of law. In its prior Summary Judgment Opinion, the Court reasoned:
[Doc. No. 227 at 29-30] (internal citations omitted). The Court then reviewed the extrinsic and parol evidence pursuant to Montana law, but was still unable to find an undisputed interpretation of the contract.
[Doc. No. 227 at 30].
Defendants argue that these two newly discovered drafts provide undisputed insight into the intent of the parties. [Doc. No. 284 at 4]. Defendants explain that "[t]hrough a combination of continued searching and fortuity," they were able to locate drafts of the Partnership Agreement. The two drafts, dated April 21, 1989, and April 24, 1989, were found in an off-site storage unit.
Defendants point out that the language in Section 12.02 of the April 21st Draft is almost identical to Section 12.02 of the executed Agreement.
Defendants attempt to demonstrate that in the April 21st Draft, the references to 12.01 in Section 12.02 properly align with their corresponding subsections. [Doc. No. 284 at 12]. Section 12.02 of the April 21st Draft refers to subsections 12.01(a) and Section 12.01(b)(i) as follows:
[Doc. No. 282-3 at 40, 42] (emphasis added). The problem allegedly arose when White & Case attorneys incorporated the parties' edits into the April 24th Draft, which Defendants claim required renumbering and re-lettering Section 12.01. [Doc. No. 284 at 13]. As evidence of the drafting error, Defendants provide an affidavit from Dennis E. Lind, MRI's lawyer during the drafting and negotiation of the Partnership Agreement. [Doc. 282, Ex. 2 at 1]. Mr. Lind states that the drafters relabeled and renumbered the sections after incorporating edits to the April 21st Draft, but forgot to update the references elsewhere in the contract. [Id.]. "White & Case relabeled the subsections of 12.01 referenced in Section 12.02—which had been Sections 12.01(a) and 12.01(b)(1)—as Sections 12.01(d)(i) and 12.01(d)(ii)(A)." [Doc. No. 284 at 14]. As a result, Defendants argue, the April 24th Draft failed to accurately enumerate the specific set of circumstances under which a partner may be reinstated under the terms of the Agreement. [Id. at 2]. The April 24th Draft reads:
[Doc. No. 282-4 at 41, 43] (emphasis added). Defendants explain that this drafting error remained incorrect in the final, executed Agreement (dated May 31, 1989). [Doc. No. 284 at 14].
Defendants contend that Mr. Lind's declaration and the accompanying April 21st and April 24th Drafts resolve the ambiguous nature of the reinstatement provisions because they show the drafting error that led to the errant references, and consequentially demonstrate that the parties only intended that a defaulting partner be able to cure if the non-defaulting partner chose to act in accordance with Sections 12.01(d)(i) and 12.01(d)(ii)(A). [See id.]. While certainly persuasive, the Court's prior opinion has not changed; the default and cure provision of the Partnership Agreement is ambiguous. The two newly discovered drafts certainly provide some insight into the parties' intent in drafting this provision and what caused the ambiguity; however, the Court cannot weigh competing evidence at this stage in the litigation.
Accordingly, despite the discovery of the two drafts and Mr. Lind's explanation, a genuine issue of material fact remains.
Defendants have failed to show that there is no genuine dispute as to any material fact or that they are entitled to judgment as a matter of law. While Defendants are no doubt correct that by filing for bankruptcy, AR Montana/ASARCO Master defaulted under Section 11(d) of the Partnership Agreement, the consequences that result due to default depend upon the interpretation of the ambiguous default and reinstatement provisions. Notwithstanding the newly discovered drafts of the Partnership Agreement and the affidavit of Mr. Lind, fact issues remain as to the meaning of the default and cure provisions, and whether Plaintiffs have a right to reinstatement under the terms of the Agreement. Fact issues also remain concerning whether AR Montana and ASARCO Master merged prior to bankruptcy and whether, as a result of this merger, ASARCO Master is able to be reinstated under the terms of the Partnership Agreement. Relatedly, Defendants' own filings have created questions with regard to whether ASARCO, LLC or ASARCO Master are similarly able to be reinstated under the terms of the Partnership Agreement. Finally, issues remain as to what type of interest, if any, must be reinstated—a 1.23% partnership (ownership) interest or a 1.23% interest of a different kind.
For the aforementioned reasons the Court hereby
IT IS SO ORDERED.
