Case Document 431 Filed in TXSB on 03/21/17 Page 1 of 35

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1 Case Document 431 Filed in TXSB on 03/21/17 Page 1 of 35 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE VANGUARD NATURAL RESOURCES, CASE NO LLC, et al, 1 (Chapter 11) Debtors (Jointly Administered) JUDGE ISGUR BRYAN COTY MCDONALD and MEGANN MCDONALD, Hearing Date: April 14, 2017 INDIVIDUALLY, and as NEXT FRIENDS OF BKH, a Minor, and KLM, a Minor Hearing Time: 9:00 a.m. Movants VS. Courtroom: 404 VANGUARD NATURAL RESOURCES, LLC, F/K/A EAGLE ROCK ENERGY PARTNERS, LP. AND ESCAMBIA OPERATING COMPANY, LLC. Debtors MOTION OF BRYAN COTY MCDONALD, ET AL, FOR RELIEF FROM AUTOMATIC STAY AGAINST VANGUARD NATURAL RESOURCES, LLC, ET AL. This is a motion for relief from the automatic stay. If it is granted, the movant may act outside of the bankruptcy process. If you do not want the stay lifted, immediately contact the moving party to settle. If you cannot settle, you must file a response and send a copy to the moving party at least 7 days before the hearing. If you cannot settle, you must attend the hearing. Evidence may be offered at the hearing and the Court may rule. Represented parties should act through their attorney. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, as applicable, are: Vanguard Natural Resources, LLC (1161); Eagle Rock Acquisition Partnership, L.P. (6706); Eagle Rock Acquisition Partnership II. L.P. (0903); Eagle Rock Energy Acquisition Co., Inc. (4564); Eagle Rock Energy Acquisition Co. II, Inc. (3364); Eagle Rock Upstream Development Company, Inc. (0113); Eagle Rock Upstream Development Company II, Inc. (7453); Encore Clear fork Pipeline LLC (2032); Escambia Asset Co., LLC (3869); Escambia Operating Co. LLC (2000); Vanguard Natural Gas, LLC (1004); Vanguard Operating, LLC (9331); VNR Finance corp. (1494); VNR Holdings, LLC (6371); The location of the Debtors service address is: 5847 San Felipe, Suite 3000, Houston, Texas Motion to Lift Stay Page 1

2 Case Document 431 Filed in TXSB on 03/21/17 Page 2 of 35 There will be a hearing on this matter on April 14, 2017 at 9:00 a.m. in Courtroom No. 404, 515 Rusk Avenue, Houston, Texas TO THE HONORABLE MARVIN ISGUR, UNITED STATES BANKRUPTCY JUDGE: Comes Now, Bryan Coty McDonald and Megann McDonald, Individually and a Next Friends of BKH, a Minor, and KLM, a Minor, Movants herein, with this Motion for Relief from Automatic Stay against Vanguard Natural Resources, LLC, f/k/a Eagle Rock Energy Partners, LP and Escambia Operating Company, LLC, Debtors, (the Debtors ) pursuant to 11 U.S.C. 362(d), and in support thereof would respectfully show unto the Court as follows: Jurisdiction and Venue 1. This Court has jurisdiction over this matter pursuant to 28 U.S.C Venue is proper in this District pursuant to 28 U.S.C and This is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(G). This matter is being brought pursuant to 11 U.S.C. 105 and 362(d). Underlying Facts 2. On October 13, 2016, the Movants filed their Third Amended Original Petition and Request for Disclosure in Bryan Coty McDonald and Megann McDonald, Individually and as Next Friends of BKH, a Minor, and KLM, a Minor v. Eagle Rock Energy Partners, LP, Escambia Operating Company, LLC, Vanguard Operating, LLC. (formerly Eagle Rock Energy Partners, LP ), Vanguard Operating, LLC, Satendra Sharma, and Green s Energy Group, LLC, in Cause No , in the 55 th Judicial District Court of Harris County, Texas (the State Court Litigation ). Motion to Lift Stay Page 2

3 Case Document 431 Filed in TXSB on 03/21/17 Page 3 of On March 18, 2016, the Debtors filed their First Amended Answer to the Movant s Original Petition. According to the Docket Sheet for the 55 th Judicial District Court, no other Answers have been filed by the Debtors. 4. On February 1, 2017, the Debtors, and other related entities, filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code. 5. On February 3, 2017, the Court entered an order directing joint administration of related chapter 11 cases thereby jointly administering all of the cases under Vanguard Natural Resources, LLC, Case No , at Docket No On February 9, 2017, the Debtors filed a Suggestion of Bankruptcy in the State Court Litigation, thereby staying the continuation of that litigation. The State Court Litigation 7. Plaintiff Bryan Coty McDonald ( McDonald ) worked for Premiere Well Services, LLC at the time the causes of action in the State Court Litigation arose. 8. Vanguard Operating, LLC. (formerly Eagle Rock Energy Partners, LP ) ( Vanguard ) and Premiere Well Services, LLC ( Premiere ) are parties to a Master Service Agreement ( MSA ) whereby Premiere is obligated to provide Vanguard s defense and indemnity for McDonald s claims. See Article 4.3 of the MSA attached hereto as Exhibit A. 9. Premiere has an insurance policy with United States Fire Insurance for $1,000,000 and surplus coverage with Axis Surplus Insurance Company for $10,000,000 for total insurance coverage of $11,000,000. A copy of the Certificate of Liability Insurance for the relevant period is attached hereto as Exhibit B. 10. The settlement demand by McDonald is less than Premiere s total insurance coverage. Motion to Lift Stay Page 3

4 Case Document 431 Filed in TXSB on 03/21/17 Page 4 of In addition, a co-defendant, Greene s Energy Group, LLC, ( Greene ) has primary coverage of $1,000,000and surplus coverage of $25,000,000 through Lexington Insurance Company. Copies of Greene s insurance Commercial General Liability Policy Occurrence Form Declarations for the relevant period are attached hereto as Exhibit C. 12. Clearly there is sufficient third party insurance coverage to satisfy any judgment obtained by McDonald. Cause Exists for Terminating the Automatic Stay 13. Cause exists for terminating the automatic stay pursuant to Section 362(d)(1) of the Bankruptcy Code to allow McDonald to liquidate all claims in the State Court Litigation with recovery limited to insurance proceeds only. What constitutes cause for lifting the stay pursuant to Section 362(d)(1) is not defined in the Bankruptcy code, but must be determined on a case by case analysis based upon an examination of the totality of the circumstances Courts are generally in agreement that an insurance policy itself will be considered property of the estate. 3 The more important question the Court must determine is whether the proceeds from liability insurance policies are also considered property of the estate. 4 Under the typical liability policy, the debtor will not have a cognizable interest in the proceeds of the policy. Those proceeds would normally be payable only for the benefit of those harmed by the debtor under the terms of the insurance contract. 5 2 See, e.g., In re Trident Assoc. L.P., 52 F.3d 127 (6 th Cir. 1995); Claughton v. Mixson, 33 F.3d 4 (4 th Cir. 1994); and In re Tucson Estates, Inc., 912 F.2d 1162 (9 th Cir. 1990). 3 In re Sfuzzi, Inc., 191 B.R. 664, 666 (Bankr.N.D.TX 1996), citations omitted. 4 5 Id. Id., at p Motion to Lift Stay Page 4

5 Case Document 431 Filed in TXSB on 03/21/17 Page 5 of In the instant proceeding, the insurance policies are provided by non-debtors and any recovery under those policies will have no impact on the Debtors Estate. Therefore cause exists under 11 U.S.C. 362(d)(1) to lift the automatic stay. WHEREFORE, PREMISES CONSIDERED, Movants Bryan Coty McDonald and Megann McDonald, Individually and a Next Friends of BKH, a Minor, and KLM, a Minor, pray that this Court lift the automatic stay pursuant to 11 U.S.C. 362(d) as to all parties to permit the Movants to liquidate and collect on their claims in the State Court Litigation with collection of any damages awarded limited to insurance proceeds only, and for such other and further relief, at law and in equity, as this Court deems just. Respectfully submitted this 21 st day of March, Cooper & Scully, PC. By: /s/ Julie M. Koenig Julie M. Koenig State Bar No Fed Id# Walker, Suite 1040 Houston, Texas / (Telephone) 713/ (Telecopier) Julie.Koenig@cooperscully.com Attorneys for Movants Motion to Lift Stay Page 5

6 Case Document 431 Filed in TXSB on 03/21/17 Page 6 of 35 CERTIFICATE OF CONFERENCE I hereby certify that I spoke with and provided documentation to Daniel Newman at Paul Hastings, LLP, Counsel for the Debtor, on March 6, 2017, and March 8, 2017, in an effort to reach an agreement on lifting the automatic stay. As of the date of this filing, no agreement has been reached. By: /s/ Julie M. Koenig Julie M. Koenig CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing has been served on all parties set forth below and on the attached service via either , ECF Notification or by first class mail, proper postage affixed, on this the 21 st day of March, By: /s/ Julie M. Koenig Julie M. Koenig James Tillman Grogan, III jamesgrogan@paulhastings.com Daniel Forest Newman dannynewman@paulhastings.com Christine A. March Christine.a.march@usdoj.gov Motion to Lift Stay Page 6

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36 Case Document Filed in TXSB on 03/21/17 Page 1 of 12 Exhibit "A"

37 Case Document Filed in TXSB on 03/21/17 Page 2 of 12 Exhibit "A"

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48 Case Document Filed in TXSB on 03/21/17 Page 1 of 1 Exhibit "B"

49 Case Document Filed in TXSB on 03/21/17 Page 1 of 2 Exhibit "C"

50 Case Document Filed in TXSB on 03/21/17 Page 2 of 2 Exhibit "C"

51 Case Document Filed in TXSB on 03/21/17 Page 1 of 2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE VANGUARD NATURAL RESOURCES, CASE NO LLC, et al, 6 (Chapter 11) Debtors (Jointly Administered) JUDGE ISGUR BRYAN COTY MCDONALD and MEGANN MCDONALD, Hearing Date: April 14, 2017 INDIVIDUALLY, and as NEXT FRIENDS OF BKH, a Minor, and KLM, a Minor Hearing Time: 9:00 a.m. Movants VS. Courtroom: 404 VANGUARD NATURAL RESOURCES, LLC, F/K/A EAGLE ROCK ENERGY PARTNERS, LP. AND ESCAMBIA OPERATING COMPANY, LLC. Debtors ORDER GRANTING MOTION OF BRYAN COTY MCDONALD, ET AL. FOR RELIEF FROM AUTOMATIC STAY On this date, the Court considered the Motion of Bryan Coty McDonald and Megann McDonald, Individually and a Next Friends of BKH, a Minor, and KLM, a Minor, Movants herein 6 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, as applicable, are: Vanguard Natural Resources, LLC (1161); Eagle Rock Acquisition Partnership, L.P. (6706); Eagle Rock Acquisition Partnership II. L.P. (0903); Eagle Rock Energy Acquisition Co., Inc. (4564); Eagle Rock Energy Acquisition Co. II, Inc. (3364); Eagle Rock Upstream Development Company, Inc. (0113); Eagle Rock Upstream Development Company II, Inc. (7453); Encore Clear fork Pipeline LLC (2032); Escambia Asset Co., LLC (3869); Escambia Operating Co. LLC (2000); Vanguard Natural Gas, LLC (1004); Vanguard Operating, LLC (9331); VNR Finance corp. (1494); VNR Holdings, LLC (6371); The location of the Debtors service address is: 5847 San Felipe, Suite 3000, Houston, Texas Order Lifting Stay \\CASES-H\CASES-H\HORTMAN HARLOW - CR \362 MOTION AND ORDER.DOCX Page 7

52 Case Document Filed in TXSB on 03/21/17 Page 2 of 2 for Relief from Automatic Stay, and finding that all required notices of said Motion have been properly served, no Response or Affidavit in Opposition have been filed, and the time for filing same has expired, the Court is of the opinion that said Motion should be granted; it is therefore ORDERED that the automatic stay as provided in 11 U.S.C. 362 as to Movants is lifted as to all parties to permit Movants to liquidate and collect on any judgment in that state court litigation styled Bryan Coty McDonald and Megann McDonald, Individually and as Next Friends of BKH, a Minor, and KLM, a Minor v. Eagle Rock Energy Partners, LP, Escambia Operating Company, LLC, Vanguard Operating, LLC. (formerly Eagle Rock Energy Partners, LP ), Vanguard Operating, LLC, Satendra Sharma, and Green s Energy Group, LLC, in Cause No , in the 55 th Judicial District Court of Harris County, Texas; it is further ORDERED that any recovery on any judgment obtained is limited to insurance proceeds of the Debtor or any other third party. SIGNED this day of, MARVIN ISGUR, UNITED STATES BANKRUPTCY JUDGE Order Lifting Stay \\CASES-H\CASES-H\HORTMAN HARLOW - CR \362 MOTION AND ORDER.DOCX Page 8