Case Document 1513 Filed in TXSB on 04/02/18 Page 1 of 9 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS CORPUS CHRISTI DIVISION

Transcription

1 Case Document 1513 Filed in TXSB on 04/02/18 Page 1 of 9 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS CORPUS CHRISTI DIVISION In re: Chapter 11 SHERWIN ALUMINA COMPANY, LLC, et al.,0f1 Case No Debtors. (Jointly Administered) David R. Jones MOTION PURSUANT TO BANKRUPTCY RULE 9019 FOR AN ENTRY OF ORDER APPROVING SETTLEMENT BETWEEN TCEQ AND REYNOLDS METALS COMPANY, LLC AND ALCOA, CORP. THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. Texas Commission on Environmental Quality ( TCEQ ) along with Reynolds Metals Company, LLC ( Reynolds )1F2, Alcoa, Corp. ( Alcoa ), and Copano Enterprises LLC (together referred to as the Parties ) file this joint motion to compromise under Rule 9019 of the Federal Rules of Bankruptcy Procedure. The Parties present to the Court the attached 9019 Settlement 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number, are: Sherwin Alumina Company, LLC (2376); and Sherwin Pipeline, Inc. (9047). The debtors service address is: 4633 Highway 361, Gregory, Texas As of June 30, 2016, Reynolds Metals Company became Reynolds Metals Company, LLC.

2 Case Document 1513 Filed in TXSB on 04/02/18 Page 2 of 9 Agreement Attendant to the 363 Sale of the Copano Site (hereinafter the Settlement ) which will resolve a dispute pertaining to environmental liabilities arising from the bauxite disposal facility underlying the adversary proceeding filed by TCEQ against Debtor, Sherwin Alumina Company, LLC ( Sherwin ), who, in turn, filed an adversary complaint against Reynolds for the same environmental liabilities and more. The attached Settlement resolves, between the Parties the maintenance and care of the Copano Disposal Facility and the ultimate closure or continued use, if permitted, of the four disposal beds in accordance with applicable environmental laws. Entry of this settlement will allow TCEQ to dismiss, without prejudice, its Adversary Complaint. I. JURISDICTION 1. This Court has subject matter jurisdiction pursuant to 28 U.S.C. 157 and This Motion is a core proceeding under 28 U.S.C. 157(b)(2). 2. Venue in this District is proper pursuant to 28 U.S.C and The predicates for the relief requested herein are 11 U.S.C. 105(a), 362(a) and Bankruptcy Rule II. BACKGROUND 3. From 1953 to 2000, Reynolds owned and operated the alumina production facility located in Gregory, Texas ( Main Facility ) and the four earthen impoundments totaling 3,581- acres near Copano Bay (hereinafter the Copano Disposal Facility ). The four impoundments are located on a 11,000 acre tract of land which also includes the area referred to as the Copano Ranch (collectively referred to herein as the Copano Lands ). 4. Sherwin Alumina owned and operated the Main Facility and the Copano Disposal Facility beginning in 2007 and ceased alumina productions after filing bankruptcy. 2

3 Case Document 1513 Filed in TXSB on 04/02/18 Page 3 of 9 5. On October 4, 2016, TCEQ filed an adversary complaint against Sherwin (Adv. Pro. No ) and sought injunctive relief against Debtors to cease violating applicable environmental laws. 6. On October 11, 2016, Sherwin filed an adversary complaint against Reynolds (Adv. Pro. No ) which sought declaratory relief to establish Reynolds s environmental liability from its prior ownership of the Main Facility and the Copano Disposal Facility. 7. In the early part of 2017, Debtors proposed a chapter 11 plan which allowed various parties, including the Parties plus Debtors and others, to negotiate a Proposed Environmental Claims Settlement Agreement (as defined in the Chapter 11 Plan) instead of appointing an administrator to manage the Copano Lands while beginning the process to close the Copano Disposal Facility and take whatever other actions necessary to carry out its duties, such as suing any potentially responsible party. See Debtors Modified Joint Chapter 11 Plan, Article IV, D2 [Docket No. 1178]. 8. The Court confirmed the plan on February 17, See Order (I) Approving the Adequacy of Disclosure Statement for the Debtors Modified Joint Chapter 11 Plan and (II) Confirming Debtors Modified Joint Chapter 11 Plan [Docket No. 1194]. 9. After several months of negotiating, TCEQ reached an agreement with Reynolds, Alcoa, and Copano Enterprises which will address environmental liabilities associated with the Copano Disposal Facility and provides for closure or continued use, as authorized by the TCEQ, of the impoundment beds in accordance with applicable environmental laws. The Parties explicitly acknowledge that the settlement cannot go into effect until and unless Reynolds, Alcoa, and Copano Enterprises reach an agreement with Sherwin, Commodity Funding, and Corpus Christi Alumina providing for the transfer of the Copano Lands to Copano Enterprises. 3

4 Case Document 1513 Filed in TXSB on 04/02/18 Page 4 of 9 III. The Settlement Agreement Summary 10. Included in the Settlement Agreement are, inter alia, the following: a. Reynolds and Alcoa provide the following financial assurances: (i) (ii) (iii) (iv) Unbounded Corporate Performance Guarantee- Reynolds and Alcoa grant TCEQ an unbounded corporate performance guarantee to fulfill the requirements of the Settlement; $6,000,000 to be held in Treasury Safekeeping Trust for costs associated with the closure and post-closure care of the Copano Disposal Facility; An additional $6,000,000 as either a Letter of Credit or cash held in Treasury Safekeeping Trust; and, Additional Financial Assurances upon TCEQ approval of the closure plans for each of the four earthen impoundments. b. Copano Enterprises will engage in Community Engagement by: (i) (ii) Establishing a complaint and information hotline for residents to call; and, Host meetings for the local community regarding dust abatement measures or completion of any Preliminary Groundwater Assessment Report. c. Copano Enterprises may continue to use the impoundment beds as allowed by law and approved by the Executive Director of the TCEQ. d. TCEQ will, upon successful completion of the remediation and closure of each of the following, grant contribution protection to Alcoa, Reynolds, and Copano Enterprises: (1) the Main Facility in Gregory, Texas; and, (2) the Copano Disposal Facility. e. Nothing in Settlement Agreement shall be deemed to release the Debtors, the Debtors Parent, Affiliates, or any party of any liability as set out in Section 10. f. Nothing in the Settlement Agreement shall be deemed to provide contribution protection to Debtors, Debtors Parents, or affiliates. 4

5 Case Document 1513 Filed in TXSB on 04/02/18 Page 5 of 9 IV. ARGUMENT & AUTHORITIES TO APPROVE THE SETTLEMENT AS BEING FAIR AND EQUITABLE 11. The Parties seek entry of an order approving the attached Settlement Agreement which would not go effective until and unless Reynolds, Alcoa, and Copano Enterprises purchases the Copano Lands from Sherwin. 12. The merits of a proposed compromise should be judged under the criteria set forth in Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968). TMT Trailer requires that a compromise must be fair and equitable. TMT Trailer, 390 U.S. at 424; U.S. v. AWECO, Inc. (In re AWECO, Inc.), 725 F.2d 293, 298 (5th Cir. 1984), cert. denied, 469 U.S. 880 (1984). The terms fair and equitable mean that (i) senior interests are entitled to full priority over junior interests; and (ii) the compromise is reasonable in relation to the likely rewards of litigation. Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop. Inc. (In re Cajun Elec. Power Co-op.), 119 F.3d 349, 355 (5th Cir. 1997); Rivercity v. Herpel (In re Jackson Brewing Co.), 624 F.2d 599, 602 (5th Cir. 1980). 13. In determining whether a proposed compromise is fair and equitable, a Court should consider the following factors: a. the probabilities of ultimate success should the claim be litigated; b. the complexity, expense, and likely duration of litigating the claim; c. the difficulties of collecting a judgment rendered from such litigation; and d. all other factors relevant to a full and fair assessment of the wisdom of the compromise. TMT Trailer, 390 U.S. at 424. The Fifth Circuit has further elaborated on the factors to be considered in evaluating the wisdom of a proposed settlement. One factor to be considered is the paramount interest of creditors with proper deference to their reasonable views. Connecticut Gen. Life Ins. Co. v. United Companies Fin. Corp. (In re Foster Mortgage Corp.), 68 F.3d 914, 917 (5th Cir. 1995). Another factor bearing on the wisdom of the compromise is the extent to which the proposed settlement 5

6 Case Document 1513 Filed in TXSB on 04/02/18 Page 6 of 9 is the product of arms-length negotiation. Id. at 918.2F3 14. In deciding whether to accept a compromise, a trustee is required to reach an informed judgment, after diligent investigation, as to whether it is prudent to eliminate the inherent risks, delays, and expense of prolonged litigation. LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 212 F.3d 632 (1st Cir. 2000). A court is not to substitute its own judgment for that of the trustee, but rather to canvass the issues and determine whether the settlement falls below the lowest point in the range of reasonableness. Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599, 609 (2d Cir. 1983). Application of the Legal Standards: 15. The Settlement, negotiated over several months, is the best result for the Parties. In lieu of this Settlement, litigation amongst the Debtors, TCEQ, and Reynolds would be lengthy and expensive. In support of the Settlement, the Parties argue: a. The probability of ultimate success: TCEQ is confident that it would prevail in the current adversary proceeding or any hypothetical proceeding against the Parties in this circumstance. However, all Parties acknowledge that this litigation would be hard-fought, and Reynolds asserts that it has valid defenses to the Debtors claims. b. The Complexity, Expense, and Duration of litigation: The Parties acknowledge that if the related adversary proceedings were to be tried, the Parties would need weeks to try the case due to the volume of facts and evidence needed to put before the Court so that it could apportion liability between the responsible parties. The time and monetary expense would be substantial. c. Difficulty in Recovery: Debtor, the Defendant in TCEQ s adversary complaint, confirmed its chapter 11 plan sold the valuable property and has 3 Citing to Foster Mortgage, 68 F.3d at , the Fifth Circuit in Cadle Co. v. Mims (In re Moore), 608 F.3d 253, 263 (5th Cir. 2010) recently held that [f]ive factors inform the fair and equitable analysis: (1) the probability of success in the litigation, with due consideration for the uncertainty in fact and law; (2) the complexity and likely duration of the litigation and any attendant expense, inconvenience, and delay, including the difficulties, if any, to be encountered in the matter of collection; (3) the paramount interest of the creditors and a proper deference to their respective views; (4) the extent to which the settlement is truly the product of arm s-length bargaining and not fraud or collusion; and (5) all other factors bearing on the wisdom of the compromise. The State and Debtor submit that as set forth herein, application of each of these factors either favors approval of the proposed settlement or is neutral. 6

7 Case Document 1513 Filed in TXSB on 04/02/18 Page 7 of 9 virtually no assets remaining, with the notable exception of the Copano Ranch. Recovery by TCEQ would require suing Reynolds and Alcoa, or crafting a legal argument against any of the affiliates or parent corporations of Sherwin Alumina. In comparison to the attached settlement, those steps towards recovery are immensely more difficult. Reynolds and Alcoa are prepared to fund Copano Enterprises, provide unbound corporate guarantees, and put forward a total of $12,000,000 as hard money guarantees towards the remediation, closure, and post-closure care of the Copano Disposal Facility. This factor weighs significantly in favor of the Settlement. d. Other Factors: TCEQ and the Parties negotiated over several months in hopes of reaching an amicable solution to this historical problem. TCEQ, believes that the Settlement provides robust regulatory oversight of the ongoing use of and maintenance of the Copano Disposal Facility. Reynolds and Alcoa, for their part are familiar with the process of remediating and closing legacy sites and should provide institutional experience on how to efficiently and economically remediate, close, and care for Copano Disposal Facility. 16. Given the interplay of the two legal battles and the attendant litigation costs, the parties believe that the proposed compromise satisfies the requirements established by the Supreme Court in TMT Trailer. III. CONCLUSION 17. Accordingly, the Parties respectfully request that this Court enter an order approving the proposed compromise set forth above and grant such relief as is just. [Remainder of page intentionally left blank] 7

8 Case Document 1513 Filed in TXSB on 04/02/18 Page 8 of 9 Respectfully Submitted, Dated: April 2, 2018 /s/ Hal F. Morris Ken Paxton Attorney General of Texas Jeffrey C. Mateer First Assistant Attorney General Brantley Starr Deputy First Assistant Ronald R. Del Vento Assistant Attorney General Chief, Bankruptcy & Collections Division Hal F. Morris Texas State Bar No S. Dist. Bar No Ashley Flynn Bartram Texas State Bar No S. Dist. Bar No Todd B. Headden Texas State Bar No S.D. Bar No Bankruptcy & Collections Division P. O. Box Austin, Texas Telephone: (512) Facsimile: (512) ashley.bartram@oag.texas.gov todd.headden@oag.texas.gov Counsel for the Texas Commission on Environmental Quality -and- /s/ Paul D. Moak Paul D. Moak (State Bar No ) Benjamin W. Hugon (State Bar No ) MCKOOL SMITH P.C. 600 Travis, Suite 7000 Houston, Texas Telephone: (713) Facsimile: (713) pmoak@mckoolsmith.com bhugon@mckoolsmith.com Counsel for Reynolds Metals Company, LLC and Alcoa Corp.

9 Case Document 1513 Filed in TXSB on 04/02/18 Page 9 of 9 CERTIFICATE OF SERVICE I certify that a true and correct copy of the foregoing has been served via the Court s Electronic Filing System on all parties requesting notice in this proceeding and that copies were mailed to the counsel and parties listed below, via first class U.S. Mail, postage prepaid on April 2, Sherwin Alumina Company, LLC 4633 Highway 361 Gregory, TX Debtor Sherwin Pipeline, Inc Highway 361 Gregory, TX Joint Debtor Robin Russell Andrews Kurth LLP 600 Travis, Suite 4200 Houston, TX Counsel for Official Committee of Unsecured Creditors Stephen Douglas Statham Office of US Trustee 515 Rusk, Suite 3516 Houston, TX Counsel for U.S. Trustee Paul Moak MCKOOL SMITH P.C. 600 Travis, Suite 7000 Houston, Texas James H.M. Sprayregen, P.C. Gregory F. Pesce, Esq. Kirkland & Ellis LLP 300 North LaSalle Chicago, IL Joshua A. Sussberg, Esq. Kirkland & Ellis LLP 601 Lexington Avenue New York, NY Jeanne Cohn-Connor Kirkland & Ellis LLP 655 Fifteenth Street, N.W. Washington, D.C Counsel for Debtors James V. Drew CURTIS, MALLET-PREVOST, COLT & MOSLE LLP 101 Park Avenue New York, New York Counsel for Commodity Funding Counsel for Reynolds Metals Company, LLC /s/ Hal F. Morris HAL F. MORRIS Assistant Attorney General 9

10 Case Document Filed in TXSB on 04/02/18 Page 1 of 2 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS CORPUS CHRISTI DIVISION In re: Chapter 11 SHERWIN ALUMINA COMPANY, LLC, et al.,0f1 Case No Debtors. (Jointly Administered) David R. Jones ORDER GRANTING MOTION PURSUANT TO BANKRUPTCY RULE 9019 FOR AN ENTRY OF ORDER APPROVING SETTLEMENT BETWEEN TCEQ AND REYNOLDS METALS COMPANY, LLC AND ALCOA, CORP. (Docket No. ) Upon the Joint Motion (the Motion ) brought by Texas Commission on Environmental Quality ( TCEQ ), Reynolds Metals Company, LLC ( Reynolds )1F2, Alcoa, Corp. ( Alcoa ), and Copano Enterprises LLC (together referred to as the Parties ) for an order approving and authorizing the Settlement Attendant to the 363 Sale of the Copano Site (referred to as the TCEQ Settlement ) (Attached as Exhibit A and incorporated by reference as if fully set forth herein) and notice of the Motion having been given as described in the Motion; and no other or further notice being necessary or required; and no objections to the Motion having been filed; and it appearing to the Court, based upon the Motion, the record of the hearing held to consider the Motion, and the full record of these cases that the Motion should be granted; and after due deliberation, and sufficient just cause for the relief appearing therefor, it is hereby 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number, are: Sherwin Alumina Company, LLC (2376); and Sherwin Pipeline, Inc. (9047). The debtors service address is: 4633 Highway 361, Gregory, Texas As of June 30, 2016, Reynolds Metals Company became Reynolds Metals Company, LLC. A

11 Case Document Filed in TXSB on 04/02/18 Page 2 of 2 ORDERED, ADJUDGED, AND DECREED that: 1. The Motion is granted. 2. The Settlement Agreement is approved pursuant to Bankruptcy Rule The Parties are authorized to take such further actions and execute and deliver such further documents as may be reasonably necessary to effectuate the Settlement. 4. This Court shall retain concurrent jurisdiction as set out in Section 12 of the TCEQ Settlement Agreement, over matters related to the Motion and this Order. Any disputes arising under the TCEQ Settlement Agreement shall be subject to the laws of the State of Texas with venue in Travis County, Texas. 5. Nothing in this 9019 Order shall be deemed to release the Debtors, the Debtors Parent, Affiliates, or any party of any liability as set out in Section 10 of the TCEQ Settlement Agreement. 6. Nothing in this 9019 Order shall be deemed to provide contribution protection to Debtors, Debtors Parents, or affiliates. Contribution Protection shall be granted only under the terms expressly provided in Section 9 of the TCEQ Settlement Agreement. 7. Promptly following the Effective Date of this TCEQ Settlement Agreement, the TCEQ will dismiss the attendant TCEQ Adversary (Adv. Pro. No ) without prejudice. Dated:, 2018 Corpus Christi, Texas THE HONORABLE DAVID R. JONES UNITED STATES BANKRUPTCY JUDGE 2

12 Case Document Filed in TXSB on 04/02/18 Page 1 of 31 B

13 Case Document Filed in TXSB on 04/02/18 Page 2 of 31

14 Case Document Filed in TXSB on 04/02/18 Page 3 of 31

15 Case Document Filed in TXSB on 04/02/18 Page 4 of 31

16 Case Document Filed in TXSB on 04/02/18 Page 5 of 31

17 Case Document Filed in TXSB on 04/02/18 Page 6 of 31

18 Case Document Filed in TXSB on 04/02/18 Page 7 of 31

19 Case Document Filed in TXSB on 04/02/18 Page 8 of 31

20 Case Document Filed in TXSB on 04/02/18 Page 9 of 31

21 Case Document Filed in TXSB on 04/02/18 Page 10 of 31

22 Case Document Filed in TXSB on 04/02/18 Page 11 of 31

23 Case Document Filed in TXSB on 04/02/18 Page 12 of 31

24 Case Document Filed in TXSB on 04/02/18 Page 13 of 31

25 Case Document Filed in TXSB on 04/02/18 Page 14 of 31

26 Case Document Filed in TXSB on 04/02/18 Page 15 of 31

27 Case Document Filed in TXSB on 04/02/18 Page 16 of Settlement Agreement Attendant to the 363 Sale of the Copano Site Texas Commission on Environmental Quality by: Hal F. Morris Assistant Attorney General/Managing Attorney Bankruptcy Regulatory Section Office of the Texas Attorney General Counsel for Texas Commission on Environmental Quality 03 I /2 /2.0 /'t Date

28 Case Document Filed in TXSB on 04/02/18 Page 17 of 31

29 Case Document Filed in TXSB on 04/02/18 Page 18 of 31

30 Case Document Filed in TXSB on 04/02/18 Page 19 of 31

31 Case Document Filed in TXSB on 04/02/18 Page 20 of 31

32 Case Document Filed in TXSB on 04/02/18 Page 21 of 31

33 Case Document Filed in TXSB on 04/02/18 Page 22 of 31

34 Case Document Filed in TXSB on 04/02/18 Page 23 of 31

35 Case Document Filed in TXSB on 04/02/18 Page 24 of 31

36 Case Document Filed in TXSB on 04/02/18 Page 25 of 31

37 Case Document Filed in TXSB on 04/02/18 Page 26 of 31

38 Case Document Filed in TXSB on 04/02/18 Page 27 of 31

39 Case Document Filed in TXSB on 04/02/18 Page 28 of 31

40 Case Document Filed in TXSB on 04/02/18 Page 29 of 31

41 Case Document Filed in TXSB on 04/02/18 Page 30 of 31

42 Case Document Filed in TXSB on 04/02/18 Page 31 of 31