IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS VICTORIA DIVISION ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

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1 Case Document 1665 Filed in TXSB on 02/01/17 Page 1 of 26 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS VICTORIA DIVISION IN RE: LINN ENERGY, LLC, et al. Debtors, SALVADOR SANCHEZ; ESMERALDA SANCHEZ, vs. Movants, LINN ENERGY HOLDINGS, LLC; BERRY PETROLEUM, LLC, Debtors, and HECTOR DURAN ESQ., Trustee Respondents. Case No (DRJ Chapter 11 PCL INDUSTRIAL SERVICES, INC. S RESPONSE TO MOVANTS MOTION FOR RELIEF FROM AUTOMATIC STAY Patrick J. Duffy, III (SBN J. Michael Grimm (SBN Monteleone & McCrory, LLP 725 S. Figueroa Street, Suite 4450 Los Angeles, California Phone: ( grimm@mmlawyers.com Hearing: February 10, 2017 Time: 9:00 a.m. Courtroom: 400 I. INTRODUCTION As stated in the moving papers, the state lawsuit stems from a vessel flange failure where the flange struck Plaintiff Salvador Sanchez after it broke free from the connected eyebolt. This motion comes on behalf of PCL Industrial Services, Inc. ( PCL. PCL is a co-defendant in the state action with the estate in bankruptcy, Linn Energy Holdings, LLC; Berry Petroleum, LLC ( Linn. Although PCL is not a party to the motion for relief from the automatic stay, this Court has broad authority to hear and evaluate all arguments. There are two critical factors not properly enumerated in the moving papers that this Court should consider when deciding whether to grant relief from the automatic stay. The first is that 1 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

2 Case Document 1665 Filed in TXSB on 02/01/17 Page 2 of 26 Plaintiff (and Movant in this action has not identified the damages sought in the state court action and refuses to limit total recovery to the available insurance a failure to do so could cause continual liability for the Bankruptcy Estate. Secondly, proper adjudication of the state court matter will require extensive discovery which should not be restricted in any way. II. CONTINUAL LIABILITY FOR BANKRUPTCY ESTATE In determining whether to lift the bankruptcy stay, the Court should consider factors in addition to the authority provided in the moving papers. Movants cite to a case only enumerating three considerations. In order to properly consider all the factors in a complex case such as this state court action, In Re City of San Bernardino is the more appropriate and on-point case. In this ninth circuit decision, the factors considered show that a more robust view is proper. See e.g. In Re City of San Bernardino 558 B.R In City of San Bernardino, the relevant factors the court considered when deciding whether to lift the automatic stay were 1. Whether the relief will result in a partial or complete resolution of the issues; 2. The lack of any connection with or interference with the bankruptcy case; 3. Whether the foreign proceeding involves the debtor as a fiduciary; 4. Whether a specialized tribunal has been established to hear the particular cause of action and whether that tribunal has the expertise to hear such cases; 5. Whether the debtor's insurance carrier has assumed full financial responsibility for defending the litigation; 6. Whether the action essentially involves third parties, and the debtor functions only as a bailee or conduit for the goods or proceeds in question; 2 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

3 Case Document 1665 Filed in TXSB on 02/01/17 Page 3 of Whether the litigation in another forum would prejudice the interests of other creditors, the creditors' committee and other interested parties; 8. Whether the judgment claim arising from the foreign action is subject to equitable subordination under Section 510(c; 9. Whether movant's success in the foreign proceeding would result in a judicial lien avoidable by the debtor under Section 522(f; 10. The interests of judicial economy and the expeditious and economical determination of litigation for the parties; 11. Whether the foreign proceedings have progressed to the point where the parties are prepared for trial, and 12. The impact of the stay on the parties and the balance of hurt. Id. at 332. Although Movant attempts to simplify the issue, the state court matter is opaque in its current state. As of this date, Movant has still not disclosed the amount of damages it is requesting in the state action and there is significant discovery still to be conducted. Movant has proposed this Court to grant relief from the stay by limiting the recovery to the insurance proceeds under the guise that the bankruptcy estate will not be affected. By lifting the bankruptcy stay, Movant is agreeing to waive any right to proceed against the Estate on any excess judgment which may be entered. Movant is silent as to the third party, PCL. As enumerated in City of San Bernardino, it is proper for this Court to consider third parties. More importantly is the effect of only waiving an excess judgment against one party. California is a joint liability state. California Civil Code 1431 says [a]n obligation imposed upon several persons, or a right created in favor of several persons, is presumed to be joint, and not several. Even if Movant were to waive its right to go after the Estate, if liability is found against both Linn and PCL with an award that is greater than the insurance coverage, PCL will be legally responsible for every dollar after $2,000,000 (the maximum 3 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

4 Case Document 1665 Filed in TXSB on 02/01/17 Page 4 of 26 recovery through the insurance policies. As stated in the Grimm Declaration at 7, Movant has refused to limit recovery to $2,000,000 for the entire lawsuit. Without assurances from Movant and without any knowledge of damages to be sought, a gross injustice is possible and the Court should not lift the stay with such a possibility. Moreover, if Movant/Plaintiff were to seek damages over $2,000,000 from PCL, PCL would seek indemnity from the bankruptcy estate - frustrating the main goal of granting relief from the stay and creating another creditor. In order to facilitate a complete resolution of the issues that will not have any connection to the bankruptcy case, Movant must agree to a complete limitation of $2,000,000. If Movant were to agree to limit the damages to $2,000,000, PCL would agree to relief from the stay and would be agreeable to a cross-release with Linn, where each party would waive indemnity rights from the other. Without Movant agreeing to the $2,000,000 limitation for all defendants, the Bankruptcy Estate is inherently intertwined with the state court action and faces continual liability. III. SIGNIFICANT DISCOVERY IS STILL REQUIRED Although significant written discovery has taken place, the cause of Plaintiff s injury is currently unknown. The vessel where the flange broke free was located on Linn s property. Prior to the automatic stay freezing all state court action, the subject of a site inspection was a matter of significant dispute between the parties, and PCL had a motion to compel the inspection on the court s calendar regarding the issue. A copy of PCL s motion has been attached hereto as Exhibit 1. As stated in the Declaration of Robert Cosselman, attached hereto as Exhibit 2 and the declaration of Dirk Duffner, attached hereto as Exhibit 3, a full site inspection without any limitation is imperative to finding the cause of the accident. The declaration provided by Movants expert witness does not adequately represent the access required. Movants expert correctly states that a site inspection is necessary, but the inspection cannot take place while the vessel is online. The flange must be suspended 4 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

5 Case Document 1665 Filed in TXSB on 02/01/17 Page 5 of 26 without restriction. Simply suspending a flange will only test the davit on the vessel. If the davit is not defective, the experts have little recourse for additional testing if the plant is still online. In order for a full site inspection to take place, the vessels must be completely shut down and the experts must have the ability to inspect the site exactly as it was on the day of the accident. As stated in the moving papers, the parties have and presumably will do their best to coordinate the site inspection with the scheduled maintenance of the vessels, but this is tough logistically, and the parties will realistically only get one opportunity during the scheduled maintenance prior to a trial beginning. The cost of potentially shutting down the site other than a maintenance period could be significant to the Estate, but again, the inspection is imperative in the state court action. Aside from the site inspection and potential shut down of the vessels, experts have also agreed that destructive testing of the failed eye bolt is necessary. Depending on the outcome of the site inspection and destructive testing, experts could require currently unanticipated discovery to find the cause of the failure; should additional discovery be required, there should be absolutely no prerequisite conditions as a term of relief from the stay. It is not anticipated that any additional discovery would incur cost to the Bankruptcy Estate, but proper adjudication of the matter in state court cannot limit authorized and relevant discovery. Movant has indicated that it is their preference that there be no bar on discovery, but they would be open to some limitations so long as relief is granted. Grimm Declaration at 6. As a named party in the state court action, PCL is entitled to conduct all discovery it sees fit without limitation, and PCL objects to relief from the stay should discovery be conditional in any way. 5 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

6 Case Document 1665 Filed in TXSB on 02/01/17 Page 6 of 26 IV. CONCLUSION Although PCL is a co-defendant and not a party to the Bankruptcy motion, PCL believes that the Court should consider the arguments laid out in this motion when deciding on whether to grant relief from the automatic stay. Dated this 1 st day of February 1, 2017 Respectfully submitted, By: /s/ J. Michael Grimm Patrick J. Duffy, III J. Michael Grimm (Admitted Pro Hac Vice Monteleone & McCrory, LLP 725 S. Figueroa Street, Suite 3200 Los Angeles, CA Phone: ( grimm@mmlawyers.com Attorneys for Defendant, PCL INDUSTRIAL SERVICES, INC. 6 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

7 Case Document 1665 Filed in TXSB on 02/01/17 Page 7 of 26 DECLARATION OF J. MICHAEL GRIMM I, J. Michael Grimm declare as follows: 1. I am an attorney in good standing, licensed by the State of California. My California bar number is I am an associate attorney working at Monteleone & McCrory and an attorney of record for PCL Industrial Services ( PCL in the related state court action. If called as a witness I could and would competently testify to the following facts. 3. On August 22, 2016, I spoke with Linn s attorney in the state court action, Ryan Stephenson, regarding the potential for relief from the stay. Mr. Stephensen proposed that relief be granted on the following conditions: a. Discovery be limited; and b. PCL would agree to a $1,000,000 limit for Linn s liability, which was the amount of the Acord insurance policy per occurrence. 4. In response to Mr. Stephensen, I said that PCL is generally not opposed to relief being granted, but PCL could not agree to the conditions proposed. Specifically, PCL has been adamant about a full site inspection with no limitation from the outset, and will not agree to anything that could limit the inspection. Secondly, I said that PCL could not agree to the $1,000,000 limitation because that exposes PCL to much greater liability. 5. On December 5, 2016, I spoke with Movant/Plaintiff s counsel, Chad Boyles, regarding the potential relief from an automatic stay. I reiterated PCL s position regarding the limitation on discovery and the potential for increased liability, especially considering the lack of specified damages in the state court action. 6. On January 23, 2017, I spoke with Mr. Boyles regarding his motion for relief from the automatic stay. Mr. Boyles expressed his hopes that any discovery would not be 7 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

8 limited, but he could accept some limitation to get relief from the stay. I asked Mr. Boyles if he had any update on the damages he would be seeking in state court. He did not. 7. Pursuant to Local Rule (a(10, on January 30, 2017, I again spoke with Mr. Boyles regarding the damages in the state court action. I proposed that the entire lawsuit be limited to $2,000,000. By limiting the entire lawsuit to $2,000,000, PCL would not face increased liability for every dollar over $2,000,000 and PCL would be agreeable to a co-release with Linn, where neither party would seek indemnification from one another. This agreement would also ensure that the bankruptcy estate would be completely clear of any future creditors at the conclusion of the state court action. Mr. Boyles indicated that he could not agree to a complete limitation to $2,000,000 because that number is too speculative, and that he is only asking for limits of the insurance policies to set relief from the stay. Case Document 1665 Filed in TXSB on 02/01/17 Page 8 of 26 I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on February 1, 2017, at Los Angeles, California. /s/ J. Michael Grimm J. MICHAEL GRIMM (Admitted Pro Hac Vice Attorneys for Defendant, PCL INDUSTRIAL SERVICES, INC. 8 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

9 Case Document 1665 Filed in TXSB on 02/01/17 Page 9 of 26 CERTIFICATE OF SERVICE The undersigned hereby certifies that he foregoing PCL INDUSTRIAL SERVICES, INC. S RESPONSE TO MOVANTS MOTION FOR RELIEF FROM AUTOMATIC STAY has been filed by the Electronic Case Filing System for the United States Bankruptcy Court Southern (Victoria District on this 1 st day of February, follows: Additionally, service has been made upon relevant parties in the State action as Served by Overnight Mail David K. Cohn, Esq. Chad J.A. Boyles, Esq. CHAIN COHN STILES 1731 Chester Avenue Bakersfield, CA ( cboyles@chainlaw.com Tracy K. Hunckler, Esq. E. Ryan Stephensen, Esq. DAY CARTER MURPHY LLP 3620 American River Drive, Suite 205 Sacramento, CA ( rstephensen@daycartermurphy.com Alexandra Schwarzman Kirkland & Ellis LLP 300 North LaSalle Chicago, Illinois ( alexandra.schwarzman@kirkland.com Attorneys for Plaintiffs, Salvador Sanchez and Esmeralda Sanchez Attorneys for Defendants, Berry Petroleum Company, LLC and Linn Operating, Inc., erroneously sued as Linn Energy Holdings, LLC Attorneys for Defendants, Berry Petroleum Company, LLC and Linn Operating, Inc., erroneously sued as Linn Energy Holdings, LLC (BANKRUPTCY MATTER /s/ J. Michael Grimm J. MICHAEL GRIMM (Admitted Pro Hac Vice Attorneys for Defendant, PCL INDUSTRIAL SERVICES, INC. 9 PCL S RESPONSE TO MOVANTS MOTIONS FOR RELIEF FROM AUTOMATIC STAY

10 Case Document 1665 Filed in TXSB on 02/01/17 Page 10 of 26 Exhibit 1

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