NEW ORLEANS – The U.S. Court of Appeals for the 5th Circuit has ironed out a case between parties whose contract was terminated after one of the companies filed bankruptcy.
Circuit Judge Stephen Higginson authored the ruling on July 26, and Circuit Judges Leslie Southwick and Priscilla Owen concurred.
Whistler Energy II LLC entered into a contract with Nabors Offshore Corp. in 2014 to provide drilling and rig equipment and services. Whistler later went bankrupt and couldn’t fulfill its contract. But Nabors' personnel and equipment had already been on the platform for months “pending the preparation of a demobilization plan and regulatory approval,” according to the appeals court. In light of Whistler’s bankruptcy, Nabors asked for administrative priority for expenses it incurred after its contract was abandoned. It requested $4.32 million in pre-demobilization costs and $2.65 million in demobilization fees. A bankruptcy court granted in part and denied in part, and Nabors appealed, causing a trial court to affirm. Nabors appealed again and the current appeals court remanded for reconsideration.
U.S. Fifth Circuit Court of Appeals Judge Stephen A. Higginson
The appeals court pointed out the post-petition relationship between Whistler and Nabors included the two working together even after the drilling contract was terminated. Still, they never signed a new agreement with each other. It added, “Although an explicit post-petition agreement is certainly helpful, neither party argues that it is the only way to establish that expenses were incurred as ‘a result of actions taken by the debtor-in-possession.”
While Whistlers admitted that Nabor was owed administrative priority for a number of services for the pre-demobilization timeframe, Higginson wrote, “the legal authority relied on by Whistler does not support the view that inducement should be narrowly defined to require an explicit request by the debtor-in-possession for specific services.”
The appeals court ruled that a creditor does have the authority to rule that its expenses are “attributable” to a bankruptcy estate’s behavior and conduct via evidence.
Still, considering the appeals court said some issues were unsettled, such as if Nabors' presence after the terminated contract was beneficial for the bankruptcy estate, the appeals court remanded the case. It ultimately said that Nabors wouldn’t be owed administrative expenses if the delay for its presence on the platform was because of its own doing and in its own control. It left it up to the bankruptcy court to decide, and remanded the case.