Jointly Administered

OPINION1

BY: KEVIN J. CAREY, UNITED STATES BANKRUPTCY JUDGE.

Before the Court is the objection of Hercules Offshore, Inc. and its debtor affiliates (collectively, the "Debtors") to the proof of claim filed by Axon Pressure Products, Inc., Axon Energy Products AS And Axon EP, Inc. (collectively, "Axon"). For the following reasons, I will overrule the Debtors' objection.

I. Background:

The Debtors were established to provide shallow-water drilling and marine services to the oil and natural gas exploration and production industry globally.2 On June 5, 2016 (the "Petition Date"), the Debtors filed voluntary petitions for relief in this Court under chapter 11 of the Bankruptcy Code. The HERO Liquidating Trust (the "Liquidating Trust") was established pursuant to the Debtors' Modified Joint Prepackaged Chapter 11 Plan (Incorporating Mediation Settlement) (D.I. 436) (the "Plan"), which was confirmed on November 15, 2016 (D.I. 486) (the "Confirmation Order").

On July 12, 2016, Axon filed the claims set forth below (the "Axon Claims"):

  Claim Number      Claimant        Debtor Entity

     126         Axon EP         SD Drilling

     128         Axon EP         Hercules Offshore

     130         Axon Energy     SD Drilling

     131         Axon Energy     Hercules Drilling

     132         Axon Energy     Hercules Offshore

     133         Axon Pressure   Hercules Offshore

     177         Axon Pressure   Hercules Drilling

     179         Axon Pressure   SD Drilling

     184         Axon EP         Hercules Drilling

Each of the Axon Claims asserts a contingent, unliquidated claim in the amount of $103,532,390.03, plus attorneys' fees, on account of potential losses incurred in connection with a well control incident (a fire) on the Hercules 265 rig that occurred approximately 40 miles off the coast of Louisiana in July 2013. The Axon Claims are based on the contractual and common law indemnity claims and common law contribution claims that the Axon Defendants (as defined below) have asserted against the Hercules Defendants (as defined below).3

The Confirmation Order

On July 27, 2016, Axon filed the Objection of Axon Pressure Products, Inc., Axon EP, Inc. and Axon Energy Products AS to (I) the Debtors' Motion for Entry of an Order Establishing the Amount of the Disputed Claims Reserve and (II) the Debtors' Joint Prepackaged Chapter 11 Plan (D.I. 245) (the "Axon Objection").

On September 24, 2016, the Debtors and Axon reached an agreement resolving the Axon Objection, which was embodied in the Confirmation Order. Specifically, the Confirmation Order provides as follows with respect to the Axon Claims:

The Incident

In early 2013, the Hercules 265, one of the Debtors' rigs, was chartered to Walter Oil and Gas ("Walter"), pursuant to the Offshore Daywork Drilling Contract, (the "Drilling Contract"). Walter's working interest partners were Tana Exploration Company, LLC ("Tana") and Helis Oil & Gas Company, L.L.C. ("Helis"). On July 23, 2013, the crew of Hercules 265 experienced a well control event with respect to the A-3 Well (the "Incident"). During operations involving the Hercules 265, a blowout occurred, and the well began emitting natural gas. On August 23, 2013, the natural gas flowing from the A-3 Well ignited aboard the Hercules 265. The Hercules 265 was seriously damaged by the fire.

On July 22, 2014, Walter, Tana, Helis and certain of Walter's insurers (collectively, the "Walter Parties") filed suit in the United States District Court for the Southern District of Texas (the "District Court") seeking subrogation for the damages incurred as a result of the Incident (the "Subrogation Action"). The Walter Parties assert damages in the amount of approximately $103 million against, among others, Axon Pressure and Axon EP (collectively, the "Axon Defendants"), which entities were alleged to have refurbished the blow out protector, a key component on the Hercules 265.

Importantly, while the Incident occurred on one of the Debtors' rigs, the Walter Parties did not name any of the Debtors as defendants in the Subrogation Action. The Walter Parties did not sue the Debtors because they contractually agreed to release and indemnify the Debtors. The contract between the Walter Parties and the Debtors provides that the Walter Parties "shall be solely responsible and assume[] liability for all consequences of operations by both parties." And, the contract provides that the underlying plaintiff shall "be responsible for and hold harmless and indemnify" Debtors for damages to the underlying plaintiffs' "Equipment or Property," "The Hole," relevant "Pollution and Contamination," "Debris Removal and Cost of Control," and "Underground Damage."

In response to the Subrogation Action, the Axon Defendants filed a third-party complaint (the "Third-Party Complaint") asserting contractual and common law indemnity claims and common law contribution claims against Debtor Hercules Offshore, Inc. ("Hercules Offshore") and Debtor Hercules Drilling Company, LLC ("Hercules Drilling") for losses that may be incurred in connection with the Incident.6

Hercules Offshore and Hercules Drilling (collectively, the "Hercules Defendants") filed cross claims against Walter seeking indemnity from Walter for losses incurred as a result of the Axon Defendants' claims against the Hercules Defendants.7 The Subrogation Action was stayed by virtue of the commencement of the chapter 11 cases. On July 8, 2014, SD Drilling filed a limitation of liability suit, which was transferred to the District Court (the "Limitation Action" and, together with the Subrogation Action, the "Pending Litigation"). Pursuant to the Limitation Action, SD Drilling seeks exoneration from or limitation of liability as to all claims arising out of the Incident.

On January 9, 2015, the Axon Defendants filed claims in the Limitation Action against SD Drilling seeking contractual indemnity pursuant to the Seahawk MSA for losses arising out of the Subrogation Litigation, indemnity at law from the Hercules 265 in rem and SD Drilling in personam, and common law contribution.

II. Discussion:

In general, the burden of proof related to claims and claims' objections shifts between the proponent of, and objector to, a claim.8 If a claimant alleges facts sufficient to support its claim, then the claim is entitled to prima facie validity.9 A party objecting to a claim that is prima facie valid bears the burden to produce sufficient evidence that discredits at least one of the allegations essential to the claim's legal sufficiency.10 If the objector "produces sufficient evidence to negate one or more of the sworn facts in the proof of claim," the burden to demonstrate an entitlement to payment on its claim shifts back to the claimant.11

Here, the Debtors request entry of an order: (i) disallowing and expunging the contingent claims for contribution or reimbursement filed by Axon in their entirety; and (ii) authorizing the claims agent to expunge each of the Axon Claims from the official register.12 Therefore, since Axon has alleged facts sufficient to support its claim, the burden rests with the Debtors to produce sufficient evidence to discredit at least one of the allegations essential to the claim's legal sufficiency.

III. Axon's Claim is Not Subject to Disallowance under Section 502(e)(1)(B) of the Bankruptcy Code.

The Debtors' main argument is that the Axon Claims should be disallowed pursuant to Bankruptcy Code section 502(e)(1)(B) because they are contingent claims for reimbursement or contribution asserted by claimants that are co-liable with the Debtors. Bankruptcy Code section 502(e)(1)(B) states:

Three elements must be present for a claim to be disallowed under Bankruptcy Code section 502(e)(1)(B): (i) the claim must be contingent; (ii) the claim must be for reimbursement or contribution; and (iii) the debtor and the claimant must be co-liable on the claim.14 All three elements must be satisfied for the claim to be disallowed,15 and the Debtors have the initial burden of proof on each element.16 The parties have agreed that the first two elements are satisfied here. As such, the Court is left to determine only whether the Debtors and Axon are co-liable on the contingent claim.

a. The Debtors and Axon are not coliable on the claim.

Under Bankruptcy Code section 502(e)(1)(B), co-liability is a "broad concept that includes all situations where indemnitors or contributors could be liable with the debtor."17 A debtor and a claimant could be found to be co-liable if "the causes of action in the underlying lawsuit assert claims upon which, if proven, the debtor could be liable but for the automatic stay."18

Further, Bankruptcy Code section 502(e)(1)(B) does not require that the party to which the claimant and a debtor are liable file a proof of claim.19 The same is true even if the claims bar date has passed and no claim has been filed by the party who could assert claims against the debtor and the claimant.20

The Debtors here argue that the Hercules Defendants and Axon are coliable to Walter. First, while the Hercules Defendants dispute Axon's indemnity and contribution claims, the Debtors argue that the Hercules Defendants "could be" held liable for some or all of the damages asserted by the Walter Parties if (i) Axon is found liable to the Walter Parties in the Pending Litigation, (ii) the District Court rules that Axon has valid indemnification and/or contribution rights against the Hercules Defendants in the Pending Litigation (and, thus, the Hercules Defendants are required to cover any damages awarded against Axon) and (iii) the District Court's rulings with respect to the issues in (i) and (ii) are upheld in the event of an appeal.

The Debtors further argue that co-liability is demonstrated by the allegations contained in the Third Party Complaint. There, Axon alleges that the Hercules Defendants are responsible for the Incident because they provided an insufficient or incompetent crew to work on the Hercules 265 and failed to take various other actions. Specifically, Axon alleges as follows:

Based on these allegations, the Debtors claim it is possible that the District Court will rule that the Hercules Defendants are at fault for the Incident.21

On the contrary, Axon denies that the Debtors and Axon are co-liable as a result of the release and indemnification provisions contained in the Drilling Contract. Axon argues that the Walter Parties cannot later name the Debtors as defendants, and the Debtors could never be liable to the Walter Parties, because they contractually released the Debtors long before the Incident. Stated more explicitly, the plaintiffs are not asserting claims, and cannot assert claims, upon which Debtors could be liable but for the automatic stay.

While Axon has alleged that the damages suffered by the Walter Parties were caused by the negligent acts, omissions or conduct of the Debtors, the Walter Parties have never asserted any liability of the Debtors because of the Walter Parties' inability to do so due to the binding release and indemnification. Put simply, Axon could be liable to the Walter Parties, and the Debtors could be liable to Axon. But most importantly, the Debtors are not and could not be potentially liable to the Walter Parties alongside Axon. The Debtors attempt to convince the Court that even if the Walter Parties are unable to assert claims against the Debtors, Axon and the Debtors should be found co-liable for purposes of Bankruptcy Code section 502(e)(1)(B).22 This speculative argument is unpersuasive.

The Debtors contentions are far too abstract and ask the Court to ignore the agreement between the Debtors and the Walter Parties which contains clear indemnification language. The Walter Parties have not named the Debtors as defendants in the Pending Litigation due to the release and indemnification provisions contained in the Drilling Contract. Further, there are no underlying lawsuits where the Debtors and Axon could be co-liable, as the statute requires. The release provided by the Walter Parties to the Debtors ensures that Axon's claim would never contravene the purpose of § 502(e)(1)(B), which is to avoid duplicative recoveries. As such, I find that the Debtors have failed to establish that the Debtors and Axon are co-liable on the claim for which reimbursement in sought. Therefore, I will overrule the Debtors' Claims Objection. An appropriate order follows.