Sabine Oil & Gas Corporation v. HPIP Gonzales Holdings, LLC

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
)
In re: 	) 	Chapter 11
)
SABINE OIL & GAS CORPORATION, et al., 	) 	Case No. 15-11835 (SCC)
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Debtors. 	) 	(Jointly Administered)
)
)
SABINE OIL & GAS CORPORATION, et al., 	)
)
Plaintiffs,
- against -
HPIP GONZALES HOLDINGS, LLC,
Defendant.
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)
)
)
)
)
)
Adversary Proceeding
No. 16-01042 (SCC)
)
)
SABINE OIL & GAS CORPORATION, et al., 	)
)
Plaintiffs, 	)
)
Adversary Proceeding
No. 16-01043 (SCC)
- against -
NORDHEIM EAGLE FORD GATHERING, LLC,
Defendant.
)
)
)
)
)
)
MEMORANDUM DECISION AND ORDER ON
(I) MOTIONS FOR STAY PENDING APPEAL AND (II) EXPEDITED
REQUESTS FOR CERTIFICATION OF ORDERS FOR DIRECT APPEAL
PURSUANT TO 28 U.S.C. § 158(d)(2) AND FED. R. BANKR. P. 8006(f)
A P P E A R A N C E S:
KIRKLAND & ELLIS LLP
KIRKLAND & ELLIS INTERNATIONAL LLP
601 Lexington Avenue
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ii
New York, NY 10022
By: 	Jonathan S. Henes, P.C.
Christopher Marcus, P.C.
300 North LaSalle
Chicago, IL 60654
By: 	Ryan Blaine Bennett, Esq.
555 California Street
San Francisco, CA 94104
By: 	Mark McKane, P.C.
600 Travis Street
Houston, TX 77002
By: 	Anna Rotman, P.C.
Nicolas Thompson, Esq.
Counsel to the Debtors
BRACEWELL LLP
1251 Avenue of the Americas, 49th Floor
New York, NY 10020
By: 	Robert G. Burns, Esq.
711 Louisiana Street, Suite 2300
Houston, TX 77002
By: 	William A. (Trey) Wood III, Esq.
Jason G. Cohen, Esq.
Yvonne Y. Ho, Esq.
Counsel to Nordheim Eagle Ford Gathering, LLC
LATHAM & WATKINS LLP
885 Third Avenue
New York, NY 10022
By: 	Keith A. Simon, Esq.
Paul A. Serritella, Esq.
Annemarie V. Reilly, Esq.
Counsel to HPIP Gonzales Holdings, LLC
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SHELLEY C. CHAPMAN
UNITED STATES BANKRUPTCY JUDGE
Before 	the 	Court 	are 	(i) 	the 	motion 	of 	Nordheim 	Eagle 	Ford 	Gathering, 	LLC
(“Nordheim”) for an order staying the Court’s May 11, 2016 Order Authorizing Rejection of
Certain Executory Contracts [Dkt. No. 1082] (the “Rejection Order”) pending Nordheim’s
appeal of the Rejection Order (the “Rejection Stay Motion”); 1 (ii) Nordheim’s expedited request
for direct certification to the United States Court of Appeals for the Second Circuit (the “Second
Circuit”) of its appeal of the Rejection Order (the “Rejection Certification Request”);2 (iii)
Nordheim’s motion for an order staying the Court’s May 11, 2016 Order on Debtors’ Motion for
Summary Judgment and Nordheim’s Motion for Judgment on the Pleadings [Adv. Pro. No. 16-
1043, Dkt. No. 22] (the “Nordheim Summary Judgment Order”) pending Nordheim’s appeal of
the Nordheim Summary Judgment Order (the “Summary Judgment Stay Motion”);3 and (iv)
Nordheim’s expedited request for direct certification to the Second Circuit of its appeal of the
Nordheim Summary Judgment Order (the “Summary Judgment Certification Request”).4 On
May 24, 2016, HPIP Gonzales Holdings, LLC (“HPIP”) filed a joinder to the Rejection
Certification Request (collectively, with the Rejection Certification Request and the Summary
Judgment Certification Request, the “Certification Requests”).5
1 	Case No. 15-11835, Dkt. No. 1099.
2 	Case No. 15-11835, Dkt. No. 1100.
3 	Adv. Pro. No. 16-1043, Dkt. No. 29. On May 20, 2016, one week after the filing of the Rejection Stay
Motion, Nordheim filed the Summary Judgment Stay Motion, which motion states that “[g]iven that the [Summary
Judgment Order] provides the definitive ruling on the issues preliminarily resolved by the Rejection Order,
Nordheim believed that the request for a stay was more appropriately directed at the Rejection Order. 	In an
abundance of caution, however, and for the reasons stated in the [Rejection Stay Motion], which are incorporated
fully by reference herein, Nordheim moves for an order staying the [Summary Judgment Order] until the underlying
legal issues are resolved on appeal.” Id. p. 2.
4 	Adv. Pro. No. 16-1043, Dkt. No. 25.
5 	Case No. 15-11835, Dkt. No. 1143.
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Procedural History
This dispute initially arose when the above-captioned debtors (the “Debtors”) filed their
Omnibus Motion for Entry of an Order Authorizing Rejection of Certain Executory Contracts
pursuant to section 365 of the Bankruptcy Code (the “Rejection Motion”)6 seeking to reject the
Nordheim Agreements and the HPIP Agreements (each as defined below). 	By decision dated
March 8, 2016 (the “Rejection Decision”),7 the Court granted the Rejection Motion, but it
concluded that, consistent with the Second Circuit’s decision in Orion Pictures Corp. v.
Showtime Networks,8 in the procedural context of a motion to reject an executory contract, it was
unable to make a final determination as to whether the covenants at issue were covenants
“running with the land.” Accordingly, in authorizing the rejection of the Nordheim Agreements
and the HPIP Agreements, the Court provided its non-binding analysis on the “running with the
land” issue, but it noted that further proceedings would be necessary in order to enable the Court
to render a binding ruling on the issue.
The Debtors subsequently commenced adversary proceedings against Nordheim and
HPIP, respectively, seeking declaratory judgments that the covenants contained in the Nordheim
Agreements and the HPIP Agreements do not run with the land. 	The Debtors moved for
summary judgment, and Nordheim and HPIP moved for judgment on the pleadings. On May 3,
2016, the Court issued its Memorandum Decision on (I) Motions of Nordheim Eagle Ford
Gathering, LLC and HPIP Gonzales Holdings, LLC for Judgment on the Pleadings and (II)
Debtors’ Omnibus Motion for Summary Judgment (the “Summary Judgment Decision”),9 which
6 	Case No. 15-11835, Dkt. No. 371.
7 	See Bench Decision on Debtors’ Omnibus Motion to Authorize Rejection of Certain Executory Contracts,
Case No. 15-11835, Dkt. No. 872, In re Sabine Oil & Gas Corp., 547 B.R. 66 (Bankr. S.D.N.Y. 2016).
8 	Orion Pictures Corp. v. Showtime Networks (In re Orion Pictures Corp.), 4 F.3d 1095, 1098 (2d Cir.
1993).
9 	Case No. 15-11835, Dkt. No. 1063; Adv. Pro. No. 16-1042, Dkt. No. 22; Adv. Pro. No. 16-1043, Dkt. No.
20; In re Sabine Oil & Gas Corp., 2016 Bankr. LEXIS 1905 (Bankr. S.D.N.Y. May 3, 2016).
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(i) granted the Debtors’ omnibus motion for summary judgment; (ii) denied the motions of
Nordheim and HPIP for judgment on the pleadings; and (iii) held that the covenants at issue do
not run with the land either as real covenants or as equitable servitudes. On May 11, 2016, the
Court entered the Rejection Order, the Nordheim Summary Judgment Order, and the Order on
Debtors’ Motion for Summary Judgment and HPIP’s Motion for Judgment on the Pleadings (the
“HPIP Summary Judgment Order”).10 Nordheim subsequently filed notices of appeal of the
Rejection Order and the Nordheim Summary Judgment Order; 11 HPIP filed a notice of appeal of
the Rejection Order and the HPIP Summary Judgment Order.12
By the Rejection Stay Motion and the Summary Judgment Stay Motion, Nordheim seeks,
pursuant to Rules 8007 and 9006(b) of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”), entry of an order staying the Rejection Order and the Nordheim Summary
Judgment Order pending its appeal of such orders. 	By the Certification Requests, Nordheim
requests direct certification of its appeal of the Rejection Order and of its appeal of the Nordheim
Summary Judgment Order to the Second Circuit.
The Debtors objected to the Rejection Stay Motion, the Summary Judgment Stay Motion,
the Rejection Certification Request, and the Summary Judgment Certification Request.13 A
hearing on the four motions was held on June 2, 2016 (the “Hearing”).14
Background
Although the Court assumes familiarity with the prior record of these proceedings, the
10 	Adv. Pro. No. 16-1042, Dkt. No. 23; Case No. 15-11835, Dkt. No. 1083.
11 	Adv. Pro. No. 16-1043, Dkt. No. 24; Case No. 15-11835, Dkt. No. 1098.
12 	Adv. Pro. No. 16-1042, Dkt. No. 24; Case No. 15-11835, Dkt. No. 1142. The two appeals filed by HPIP
have been assigned to the Hon. Jed S. Rakoff as Case Nos. 16-cv-4127 and 16-cv-4132 (S.D.N.Y.).
13 	Debtors’ Objection to Certification Requests [Adv. Pro. No. 16-1042, Dkt. No. 26; Adv. Pro. No. 16-1043,
Dkt. No. 31; Case No. 15-11835, Dkt. No. 1158]; Objection to Rejection Stay Motion and Summary Judgment Stay
Motion [Adv. Pro. No. 16-1043, Dkt. No. 30; Case No. 15-11835, Dkt. No. 1156].
14 	Nordheim filed a reply to each of the objections. See Case. No. 15-11835, Dkt. Nos. 1181, 1182; Adv. Pro.
No. 16-1043, Dkt. Nos. 32, 33.
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Rejection Decision, and the Summary Judgment Decision, it will provide some limited factual
background for the purposes of this Decision.
One of the Debtors, Sabine Oil & Gas Corporation (“Sabine”), is a party to two contracts
with Nordheim, each dated January 23, 2014, relating to the gathering of gas and condensate
produced by Sabine from a designated area (together, the “Nordheim Agreements”). 	Sabine is
also party to two contracts with HPIP, one dated May 3, 2013 and the other dated as of May
2014, relating to the gathering, handling, and disposal of oil, gas, and water produced by Sabine
from a designated area (together, the “HPIP Agreements”). 	In the Rejection Decision and the
Summary Judgment Decision, the Court summarized many of the central provisions of the
Nordheim Agreements and the HPIP Agreements and it incorporates those summaries by
reference here.15
Nordheim and HPIP have argued throughout these proceedings that (i) the Nordheim
Agreements and the HPIP Agreements contain real covenants that “run with the land;” or (ii) in
the alternative, such agreements contain covenants that are equitable servitudes. 	Based on the
undisputed facts and applicable law, the Court held in the Summary Judgment Decision
(consistent with its statements in the Rejection Decision) that the covenants at issue in the
Nordheim Agreements and the HPIP Agreements16 do not run with the land under Texas law
either as real covenants or as equitable servitudes.
Discussion
A. Certification Requests
15 	See Rejection Decision pp. 2-4; Summary Judgment Decision pp. 3-4.
16 	As identified in the Rejection Decision and the Summary Judgment Decision, the covenants at issue are (i)
the Debtors’ dedication to HPIP of certain oil, gas and water products and certain leases to the performance of the
HPIP Agreements; (ii) the Debtors’ dedication to Nordheim of certain gas and condensate products to the
performance of the Nordheim Agreements; and (iii) the Debtors’ covenant to pay Nordheim a gathering fee.
Rejection Decision p. 9; Summary Judgment Decision p. 7 n. 29.
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By the Certification Requests, Nordheim argues that because (i) the Rejection Order and
the Nordheim Summary Judgment Order and (ii) the Rejection Decision and Summary Judgment
Decision “turn[] on questions of first impression under Texas law: whether a debtor’s contracts
dedicating all hydrocarbons attributable to certain acreage to the counterparty’s pipeline and
gathering systems, and agreeing to pay a transportation fee, create real property interests – either
as covenants that run with the land or equitable servitudes,” the Rejection Order and the
Nordheim Summary Judgment Order are uniquely suited for direct appeal.17 The Debtors
disagree, arguing that (i) with respect to the Rejection Order, no novel issue of law exists which
would support a request for direct certification because the Court’s ruling as to the Rejection
Order was based solely on its finding that the Debtor properly exercised its business judgment in
seeking to reject the Nordheim Agreements and the HPIP Agreements pursuant to section 365 of
the Bankruptcy Code and (ii) with respect to the Nordheim Summary Judgment Order, the
Court’s ruling was dependent on a fact-based, case-specific analysis of the agreements at issue
and did not involve pure legal issues of the type that courts have deemed appropriate for direct
appeal. 	As a result, the Debtors submit that direct appeal of the Rejection Order and the
Nordheim Summary Judgment Order to the Second Circuit is unwarranted.
Section 158(d)(2)(A) of title 28 of the United States Code states that an appeal may be
taken directly to the relevant court of appeals
. . . if the bankruptcy court, the district court, or the bankruptcy appellate panel
involved, acting on its own motion or on the request of a party to the judgment,
order, or decree described in such first sentence, or all the appellants and
appellees (if any) acting jointly, certify that—
(i) 	the judgment, order, or decree involves a question of law as to which there
is no controlling decision of the court of appeals for the circuit or of the
Supreme Court of the United States, or involves a matter of public
importance;
17 	Rejection Certification Request p. 2; Summary Judgment Certification Request p. 2.
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(ii) 	the judgment, order, or decree involves a question of law requiring
resolution of conflicting decisions; or
(iii) 	an immediate appeal from the judgment, order, or decree may materially
advance the progress of the case or proceeding in which the appeal is
taken . . . .
28 U.S.C. § 158(d)(2)(A).18 Certification is warranted if any one of the three factors is
established. See In re General Motors Corp., 409 B.R. 24, 27 (Bankr. S.D.N.Y. 2009) (“General
Motors”). 	If the bankruptcy court certifies an order for direct appeal, the party seeking review
must then seek authorization for the direct appeal from the appellate court. 	28 U.S.C. §
158(d)(2)(A).
1. 	No Controlling Law
By the Rejection Certification Request, Nordheim argues that the Rejection Order
“readily 	meets 	the 	requirements 	for 	certification” 	under 	subsection 	(i) 	of 	28 	U.S.C. 	§
158(d)(2)(A) because the Rejection Decision addressed legal issues of first impression under
Texas law which neither the Second Circuit nor the United States Supreme Court has previously
addressed.19 The Summary Judgment Certification Request contains a nearly identical argument.
At bottom, Nordheim argues (inaccurately) that because “th[e] Court acknowledged in the
Rejection Decision that ‘there appears to be no applicable binding decision of the Texas Supreme
Court’ that resolves whether the [Nordheim] Agreements create covenants running with the
land,”20 the “novelty” of these unsettled questions of Texas law warrants resolution by direct
appeal to the Second Circuit.21 Specifically, Nordheim argues that the Court made two rulings as
18 	Nordheim has not argued that subsection (iii) applies here; accordingly, this Decision will not address that
subsection.
19 	Rejection Certification Request p. 7.
20 	Rejection Certification Request p. 7 (quoting Rejection Decision p. 12).
21 	Rejection Certification Request p. 8 (contending that “the Rejection Order turns on pure questions of law
whose acknowledged novelty warrants resolution by direct appeal”).
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to why the Nordheim Agreements fail to satisfy the requirements under Texas law for a covenant
to run with the land—one, as to horizontal privity of estate and another, as to whether the
covenants “touch and concern” the land—each of which raises novel questions that should be
directly certified for appeal to the Second Circuit.22
Each of Nordheim’s arguments fails. 	Neither the appeal of the Rejection Order nor the
appeal of the Nordheim Summary Judgment Order is appropriate for direct certification. 	The
Rejection Decision addressed no legal issues of first impression; rather, the Court employed the
business judgment test and found that “the decision to reject the Nordheim Agreements and the
HPIP Agreements is a reasonable exercise of the Debtor’s business judgment.” 23 The business
judgment standard and its application to a decision to reject pursuant to section 365 of the
Bankruptcy Code involve well-established principles of law, have been addressed in countless
decisions in this Circuit, and do not “involve[] a question of law as to which there is no
controlling decision of the court of appeals for the circuit or of the Supreme Court of the United
States,” which would be appropriate for direct certification to the Second Circuit pursuant to
section 158(d)(2)(A)(i) of title 28. 	See, e.g., Faulkner v. Kornman, 2012 WL 293230, at *3
(Bankr. S.D. Tex. Jan. 30, 2012) (finding that “[t]his question is inappropriate for certification
because controlling decisions exist”); In re Nortel Networks Corp., 2010 WL 1172642, at *1
(Bankr. D. Del. Mar. 18, 2010) (holding that certification was not authorized where “[t]here is an
abundance of controlling law on the controlling legal issue”); General Motors, 409 B.R. at 28
(denying certification where there was “a controlling judgment issued by the Second Circuit”).
22 	If the Certification Requests were to be granted, Nordheim has openly stated its intention to immediately
request that the Second Circuit send certain key legal questions to the Texas Supreme Court for its review and
guidance.
23 	Rejection Decision p. 18.
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With respect to the Summary Judgment Decision, the Court’s decision relied on a case-
specific analysis of (i) the applicable language in the Nordheim Agreements and the HPIP
Agreements and (ii) the relevant facts of these cases to determine that the covenants at issue do
not run with the land either as real covenants or as equitable servitudes. 	Significantly, as the
Debtors correctly point out, the Court did not purport to determine the proper construction of
unsettled issues of Texas law with respect to the requirement of horizontal privity or otherwise.
Instead, the Court noted that no open question under Texas law need be reached for the Court to
determine that the applicable covenants do not run with the land. 	With respect to the issue of
whether horizontal privity is a requirement under Texas law for a covenant to run with the land,
the Court stated, “[a]ccordingly, without concluding whether or not horizontal privity of estate is
indeed a requirement under Texas law, the Court finds that horizontal privity does not exist
between Sabine and Nordheim or between Sabine and HPIP.”24
Moreover, the Second Circuit has held that direct appeal is appropriate for “cases
involving ‘questions[s] of law not heavily dependent on the particular facts of a case[.]’” Mark
IV Indus., Inc. v. N.M. Env’t Dep’t, 452 B.R. 385, 388 (S.D.N.Y. 2011) (quoting Weber v. U.S.,
484 F.3d 154, 158 (2d Cir. 2007)) (denying certification where the issue “involve[d] mixed
questions of law and fact, rather than pure questions of law appropriate for direct appeal”); see
also In re Am. Home Mortgage Inv. Corp., 408 B.R. 42, 44 (Bankr. D. Del. 2009) (holding that
“those issues that are specifically linked to the Bankruptcy Court’s decision are, in the Court’s
view. . . , mixed questions that implicate the particular circumstances of this case and, as such,
they are not pure legal questions warranting direct certification”). 	Because the Summary
Judgment Decision rests squarely on the specific language in the agreements at issue here rather
than on a pure legal question (a point which Nordheim itself appears to acknowledge in framing
24 	Summary Judgment Decision p. 15.
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its “Questions Presented on Appeal” relating to the covenants in the Nordheim Agreements),25
the Nordheim Summary Judgment Order is not appropriate for direct appeal pursuant to the first
prong of section 158(d)(2)(A)(i) of title 28.
2. 	Matter of Public Importance
Subsection 158(d)(2)(A)(i) provides an alternative basis for an appeal to be eligible for
direct certification if “the judgment, order, or decree . . . involves a matter of public importance.”
28 U.S.C. § 158(d)(2)(A)(i). Courts have held that public importance exists when the matter on
appeal “transcend[s] the litigants and involves a legal question the resolution of which will
advance the cause of jurisprudence to a degree that is usually not the case.” Mark IV Indus., 452
B.R. at 388-389. 	“An appeal that impacts only the parties, and not the public at large, is not a
matter of public importance.” 	Id. (quoting In re Nortel Networks Corp., 2010 Bankr. LEXIS
812, 2010 WL 1172642, at *2).
By the Certification Requests, Nordheim argues that certification of its appeals for direct
appeal to the Second Circuit “is particularly appropriate because the Rejection Order [and the
Nordheim Summary Judgment Order] present[] matters of public importance with ramifications
extending far beyond the parties in this case.”26 Citing news articles in support of its argument,
Nordheim asserts that resolution of the issues at hand will have “far-reaching impact” on the
midstream industry because similar dedication covenants are contained in agreements between
other midstream providers (like Nordheim) and producers (like Sabine).27 Finally, Nordheim
emphasizes that, under the Texas Rules of Appellate Procedure, only the Second Circuit—and
25 	See Rejection Certification Request p. 6; Summary Judgment Certification Request pp. 6-7 (“The following
questions should be certified for direct appeal: A. Whether, under Texas law, the debtors’ covenants in the
Gathering Agreement and Condensate Agreement . . . are real covenants that run with the land[.]” and “B. Whether,
under Texas law, the covenants in the Gathering Agreement and Condensate Agreement create equitable servitudes
that run with the land[.]”).
26 	Rejection Certification Request p. 14; Summary Judgment Certification Request p. 14.
27 	Rejection Certification Request p. 15.
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not a District Court—has the authority to certify unsettled questions of Texas law to the highest
court in Texas.28 Accordingly, Nordheim argues that direct certification will enable it to
expedite resolution of the underlying questions of Texas law raised by its appeals because, if
direct certification is granted by this Court, Nordheim intends to request that the Second Circuit
certify the underlying legal issues to the Texas Supreme Court.
The Debtors argue that Nordheim misinterprets the public importance standard and
mischaracterizes this Court’s orders. The Debtors instead submit that this dispute is, at its very
essence, a dispute between private parties over their agreements and is not a matter of public
importance as such term is used in section 158 of title 28. While “Nordheim tries desperately . . .
to re-cast the Court’s decision about the reasonableness of Sabine’s actions concerning its
contracts as a referendum on Texas property law and all contracts of similarly-situated parties in
the oil and gas industry,”29 the Debtors are correct in their assertion that the Court’s fact-specific
holdings did not extend beyond the circumstances and contracts in this case. Simply put, by the
Rejection Decision, the Court authorized Sabine to reject the Nordheim Agreements and the
HPIP Agreements as a proper exercise of its business judgment; by the Summary Judgment
Decision, the Court determined that, after analyzing the specific language at issue in such
agreements, the covenants were not covenants that run with the land under applicable Texas law.
While Nordheim suggests that “the far-reaching impact of allowing producers like Sabine
to reject dedication covenants that are vital to the midstream industry underscores the urgent
need for direct review,”30 this sweeping suggestion is entirely speculative. 	Nor is the Court
28 	Rejection Certification Request p. 18 (citing TEX. R. APP. P. 58.1 (authorizing the Texas Supreme Court
to “answer questions of law certified to it by any federal appellate court if the certifying court is presented with
determinative questions of Texas law having no controlling Supreme Court precedent”); TEX. CONST. art. 5, § 3-
c(a) (investing Texas Supreme Court with “jurisdiction to answer questions of state law certified from a federal
appellate court”)).
29 	Debtors’ Objection to Certification Requests p. 14.
30 	Rejection Certification Request p. 15.
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persuaded that Nordheim’s appeals of the Rejection Order and the Nordheim Summary
Judgment Order each constitutes a matter of “public importance” because this dispute has
received substantial news coverage or because the oil and gas midstream industry is watching
this case closely. Simply because a matter is important to certain members of the public does not
render it a matter of “public importance” that meets the standard for direct certification. Rather,
as the District Court has stated, the matter on appeal must “transcend” the litigants and involve
“a legal question the resolution of which will advance the cause of jurisprudence to a degree that
is usually not the case.” Mark IV Indus., 452 B.R. 385 at 388-89; see also General Motors, 409
B.R. at 28 (emphasizing that the “public importance” inquiry focuses on whether the decision
“‘involves a question of law’” that “‘involves a matter of public importance’”). 	That is clearly
not the case here. As previously stated, the Rejection Order permitted rejection of the applicable
agreements based on the business judgment test for rejecting contracts in bankruptcy—it
involved a settled question of law that does not carry the level of “public importance” required
for a direct appeal. 	As to the Nordheim Summary Judgment Order, although the Summary
Judgment Decision may be a matter of public interest, the Court’s rulings did not purport to
settle an open question of law involving a matter of public importance. 	Instead, the Court’s
holdings pertained solely to the facts and circumstances of this case; the Summary Judgment
Decision resolved a question of contract interpretation, not a question of statutory interpretation.
3. 	Conclusion
Accordingly, for all of the reasons set forth herein, the Certification Requests are hereby
denied.
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B. Motions for Stay Pending Appeal
By the Rejection Stay Motion and the Summary Judgment Stay Motion, Nordheim
argues that each of the four factors considered by courts in determining whether a stay pending
appeal is warranted favors staying the Rejection Order and the Nordheim Summary Judgment
Order pending appeal. The Debtors disagree. The Court will discuss each of the factors in turn.
1. 	Applicable Law – Stay Pending Appeal
Federal Rule of Bankruptcy Procedure 8007(a)(1) provides that
In General. Ordinarily, a party must move first in the bankruptcy court for the
following relief:
(A) a stay of a judgment, order, or decree of the bankruptcy court pending appeal;
(B) the approval of a supersedeas bond;
(C) an order suspending, modifying, restoring, or granting an injunction while an
appeal is pending; or
(D) the suspension or continuation of proceedings in a case or other relief
permitted by subdivision (e).
Fed. R. Bankr. P. 8007(a)(1).
The decision as to whether or not to grant a stay of an order pending appeal lies within
the sound discretion of the court. 	See, e.g., General Motors, 409 B.R. at 30; In re New York
Skyline, Inc., 520 B.R. 1, 5 (S.D.N.Y. 2014). 	As the District Court held in ACC Bondholder
Grp. v. Adelphia Commc’ns. Corp. (In re Adelphia Commc’ns Corp.), 361 B.R. 337, 346
(S.D.N.Y. 2007) (“Adelphia”), the court must consider four factors in exercising this discretion:
“(1) whether the movant will suffer irreparable injury absent a stay, (2) whether a party will
suffer substantial injury if a stay is issued, (3) whether the movant has demonstrated a substantial
possibility, although less than a likelihood, of success on appeal, and (4) the public interest that
may be affected.” See also Sabine Oil & Gas Corp., 548 B.R. 674 (Bankr. S.D.N.Y. 2016).
This Court has stated that the burden on the movant seeking the extraordinary relief of a
stay is a “heavy” one. General Motors, 409 B.R. at 30. While certain courts in this Circuit have
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held that, to prevail, the moving party must show “satisfactory evidence on all four criteria,”31
other courts in this Circuit have held that the inquiry involves a balancing of the four factors and
“[t]he lack of any one factor is not dispositive to the success of the motion.”32
2. 	Discussion of Four-Factor Test for Stay Pending Appeal
In accordance with this Court’s prior discussion in ruling on a motion for a stay pending
appeal in this case, the Court declines to make a definitive determination as to whether the
movant here is required to satisfy all four factors of the four-part test in order to succeed on its
motions for a stay pending appeal; instead, the Court will employ the balancing approach utilized
in General Motors and in other recent cases.33 The Court finds that it would reach the same
conclusion—that Nordheim’s two requests for a stay must both be denied—regardless of
whether in the instant case the Court applies the rigid test (requiring compliance with all four
factors) or the more generous balancing approach. The Court will discuss each of the factors in
turn.
a. 	Irreparable Injury
A showing of probable irreparable harm is the “principal prerequisite” for the issuance of
a 	stay 	pursuant 	to 	Bankruptcy 	Rule 	8007, 	and 	such 	harm 	“must 	be 	‘neither 	remote
nor speculative, but actual and imminent.’” 	See Sabine, 548 B.R. at 681 (citing Adelphia, 361
B.R. at 347 (citations omitted)). “[T]he moving party must demonstrate that such injury is likely
31 	See General Motors, 409 B.R. at 30 (citing In re Turner, 207 B.R. 373, 375 (B.A.P. 2d Cir. 1997)).
32 	See, e.g., Mohammed v. Reno, 309 F.3d 95, 101 (2d Cir. 2002); Beeman v. BGI Creditors’ Liquidating
Trust (In re BGI, Inc.), 504 B.R. 754, 762 (S.D.N.Y. 2014); Adelphia, 361 B.R. at 346-47 (articulating the
disagreement as to the standard, stating that “the Second Circuit has never articulated such a rigid rule of law,” and
determining to follow the practice of weighing the factors).
33 	See In re Sabine, 548 B.R. at 681. In General Motors, Judge Gerber commented that, “[w]hile, as Judge
Lynch noted in DJK, the 2d Circuit BAP has held that failure to satisfy any prong of the 4-part test ‘will doom the
motion,’ . . . the Circuit and more recent cases have engaged in a balancing process with respect to the four factors,
as opposed to adopting a rigid rule.” 	General Motors, 409 B.R. at 30. 	After stating that, for purposes of his
decision, he would assume the balancing approach was more appropriate, Judge Gerber declined to make a
definitive determination with respect to the correct application of the four-factor test, given that the last three factors
overwhelmingly compelled denial of the stay in that case. Id.
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before the other requirements will be considered.” In re Perry H. Koplik & Sons, Inc., 2007 WL
781905, at *1 (Bankr. S.D.N.Y. Mar. 13, 2007).
Nordheim argues that, absent a stay, “the Rejection Order will jeopardize what Nordheim
maintains—and what the appellate court could conclude—are real property interests created by
the dedication and transportation covenants in the Gathering Agreements.”34 Further, Nordheim
argues that Sabine’s “insolvency” may limit its ability to pay damages to Nordheim and as a
result, Nordheim is unable to remedy its harm through monetary relief. In contrast, the Debtors
argue that Nordheim will not suffer irreparable injury while its appeals are pending, for several
reasons.35
To establish irreparable harm, a movant must allege an injury “‘requiring a remedy of
more than mere money damages.’” Ford v. Reynolds, 316 F.3d 351, 355 (2d Cir. 2003) (citing
Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 975 (2d Cir. 1989)). The Court has
held that the covenants in the Nordheim Agreements do not create real property rights or
interests. 	Assuming, arguendo, that Nordheim were found, on appeal, to possess real property
rights or interests under the terms of the Nordheim Agreements, Nordheim would nonetheless
have an adequate remedy in the form of monetary damages; the Nordheim Agreements contain
liquidated damages provisions that enable the calculation of monetary damages. 	A decision
affecting an alleged interest in real property does not automatically create irreparable injury as a
matter of law where the harm can be addressed through money damages such as those explicitly
calculable under the terms of the Nordheim Agreements. See, e.g., Tucker Anthony Realty Corp.
v. Schlesinger, 888 F.2d 969, 975 (2d Cir. 1989) (“The injury must be one requiring a remedy of
34 	Rejection Stay Motion p. 17.
35 	Debtors’ Objection to Rejection Stay Motion p. 8 (asserting that the Rejection Stay Motion fails because
Nordheim cannot “‘demonstrate that irreparable injury is likely in the absence of [a stay.]’” (citing Picard v.
Fairfield Greenwich Ltd., 762 F.3d 199, 212 (2d Cir. 2014) (quoting Winter v. NRDC, 555 U.S. 7, 20 (2008)))).
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more than mere money damages. 	A monetary loss will not suffice unless the movant provides
evidence of damage that cannot be rectified by financial compensation.”).
At the Hearing, the Court asked counsel for Nordheim a series of questions regarding
Nordheim’s assertion that the deprivation of its alleged real property rights would create
irreparable harm. 	Counsel confirmed that the gas gathering agreement between Sabine and
Nordheim provides for a ten-year term, at the conclusion of which either party can terminate
with proper notice to the other party, in accordance with the agreement’s terms. 36 If,
hypothetically, Sabine were to terminate its gas gathering agreement with Nordheim at least
thirty days prior to the expiration of the ten-year term of the agreement (in accordance with the
agreement’s terms), Nordheim’s alleged real property rights would have no value at that point in
time. 	If Sabine had failed to pay amounts due under the agreement, Nordheim may have a
monetary claim that could be quantified, but it cannot demonstrate that it would be irreparably
harmed in line with the traditional concept of irreparable harm to a party’s real property
interest.37 The facts are squarely at odds with irreparable harm here—Nordheim cannot establish
otherwise.
Indeed, counsel for the Debtors, at the Hearing, presented additional appellate reversal
scenarios, each of which still did not support a finding of irreparable harm to Nordheim. 	If,
hypothetically, the Nordheim Summary Judgment Order were to be reversed on appeal while the
Rejection Order were affirmed (i.e., if Nordheim were found to have real property interests under
the Nordheim Agreements), counsel for the Debtors suggested that Nordheim could assert a
36 	June 1, 2016 Hr’g Tr. at 49:10-51:22.
37 	The “traditional concept” of irreparable harm in the context of a real property interest arises when the
nature of the harm is directly related to the uniqueness or other subjective value of the real property at issue. See,
e.g., Pelfresne v. Williams Bay, 865 F.2d 877, 883 (7th Cir. 1989) (“[a]s a general rule, interference with the
enjoyment or possession of land is considered ‘irreparable’ since land is viewed as a unique commodity for which
monetary compensation is an inadequate substitute”); J.C. Penney Co. v. Giant Eagle, Inc., 813 F. Supp. 360, 369
(W.D. Pa. 1992) (“the damage to interests in real estate are generally viewed as unique”). 	Here, in contrast,
Nordheim’s alleged harm is solely financial.
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claim against the Debtors and may pursue such claim through the commencement of an action in
tort against Sabine under Texas law for trespass on Nordheim’s real property. 	Even so, any
judgment 	obtained 	in 	such 	hypothetical 	litigation 	would 	be 	injunctive 	in 	nature 	and/or
compensable in money damages. 	Similarly, if both the Rejection Order and the Nordheim
Summary Judgment Order are reversed on appeal, Nordheim would arguably have an additional
quantifiable claim for monetary relief assertable as a claim against the Debtors. 	As Debtors’
counsel stated at the Hearing, “[t]here is no scenario that we can imagine where they actually
ever get to irreparable harm at all.”38
The Court also rejects Nordheim’s assertion that it will be irreparably harmed because
Sabine’s insolvency “underscores that the harm to Nordheim resulting from the Rejection Order
could not be sufficiently rectified by monetary relief.”39 Debtors rejecting contracts in
bankruptcy often are of questionable solvency; the insolvency of a debtor counterparty standing
alone does not support a claim of irreparable injury sufficient to satisfy the standard for a stay
pending appeal. As the Debtors correctly assert, “[i]f it were otherwise, irreparable injury would
lurk in every bankruptcy, threatening to stall or derail the proceeding by stay or injunction
whenever a creditor was at risk of recovering less than 100 cents on the dollar.”40 Moreover, any
hypothetical future risk of nonpayment alleged by Nordheim is neither “actual” nor “imminent,”
and Nordheim’s assertions in this regard fail to provide a basis for any finding that it will suffer
irreparable harm during the pendency of its appeals because of Sabine’s insolvency.
b. 	Potential Harm to Other Parties
With respect to the second prong of the test for a stay pending appeal, the movant must
establish that the non-moving party or other parties will not suffer substantial harm if the stay is
38 	June 1, 2016 Hr’g Tr. at 65:4-6 (McKane).
39 	Rejection Stay Motion pp. 17-18.
40 	Debtors’ Objection to Rejection Stay Motion and Summary Judgment Stay Motion p. 10.
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granted. “In other words, the moving party must show that the balance of harms tips in favor of
granting the stay.” 	See Sabine, 548 B.R. at 682 (citing Adelphia, 361 B.R. at 349 (citations
omitted)). 	While Nordheim argues that “[t]he minimal impact of a stay on Sabine’s interests
supports staying the Rejection Order until Nordheim’s appeal is resolved,”41 the Court finds that
there would in fact be substantial harm to the Debtors and their estates if a stay were granted.
In arguing that a stay pending appeal would place Sabine in no worse a position than it
occupied prior to entry of the Rejection Order, Nordheim summarily dismisses (i) the substantial
costs to the Debtors of continuing to accrue liability for deficiency payments under the Nordheim
Agreements and (ii) the Court’s recent order authorizing Sabine’s entry into an agreement with
DCP South Central Texas LLC (“DCP”),42 implementation of which would be extremely
challenging for the Debtors were a stay to be granted and which may expose Sabine to damages
and additional expenses under its agreement with DCP.43 These additional costs would be
particularly burdensome on the Debtors, who are attempting to preserve cash and minimize costs
in their chapter 11 cases in order to maximize value for the estates, confirm a plan, and emerge
from chapter 11.
When presented with these cognizable harms to the Debtors, Nordheim states that “the
real dollar-amount of those risks . . . are more properly directed at the amount of bond that this
Court may require to secure a stay pending appeal, rather than to the issuance of a stay itself.”44
Nordheim’s reference to the amount of a bond misses the mark, however, inasmuch as
41 	Rejection Stay Motion p. 19.
42 	Case No. 15-11835, Dkt. No. 1114. Sabine’s agreement with DCP eliminates the need for Nordheim to
serve as an intermediary between the Debtors and DCP to route the Debtors’ mineral products. The Debtors have
stated that the elimination of Nordheim’s services will save the estate approximately $200,000 per month.
Objection to Stay Motions p. 11.
43 	At the Hearing, counsel for the Debtors confirmed that the DCP connection has been completed and that
within two days, hydrocarbons would be flowing through the connection. See June 1, 2016 Hr’g Tr. at 66:11-15
(McKane).
44 	Nordheim’s Reply to Rejection Stay Motion and Summary Judgment Stay Motion p. 12.
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Nordheim’s real concern seems to be a potential loss of rights if a plan is confirmed in the
Debtors’ cases prior to Nordheim’s obtaining appellate relief.45 While no party has attempted to
quantify the amount of a bond sufficient to cover a stay of a confirmation order, which amount
would indeed be considerable, the Court need not consider this unripe hypothetical at this
juncture. 	Simply put, any stay would harm the Debtors’ ability to reorganize and emerge from
chapter 11.46
c. 	Substantial Possibility of Success on Appeal
“The ‘substantial possibility of success’ test is considered an intermediate level between
‘possible’ and ‘probable’ and is ‘intended to eliminate frivolous appeals.’” See Sabine, 548 B.R.
at 683-84 (citing In re 473 West End Realty Corp., 507 B.R. 496, 501 (Bankr. S.D.N.Y. 2014)
(citing to Country Squire, 203 B.R. 182, 104 (B.A.P. 2d Cir. 1996))). The probability of success
that must be demonstrated is inversely proportional to the amount of irreparable injury that the
plaintiff will suffer absent the stay; in other words, “more of one excuses less of the other.” In re
Sabine, 548 B.R. at 684 (quoting 473 West End Realty Corp., 507 B.R. at 502 (citing Mohammed
v. Reno, 309 F.3d 95, 101 (2d Cir. 2002) (quotation omitted))).
45 	The hearing on confirmation of the Debtors’ proposed plan of reorganization commenced on June 13, 2016.
At the confirmation hearing, Nordheim will have a full and fair opportunity to litigate all of its objections to the
proposed plan. Nordheim’s allegation that it possesses a risk of equitable mootness (which risk, the Court notes, is
not ripe at this time), is insufficient to support a finding of irreparable harm. See¸ e.g., General Motors, 409 B.R. at
31 (stating that a majority of courts have held that a risk of mootness, standing alone, does not constitute irreparable
harm) (citing Adelphia, 361 B.R. at 347 n.39); see also In re DJK Residential, LLC, 2008 WL 650389, at *4 (finding
that no irreparable harm demonstrated by risk that appeal will become equitably moot upon confirmation where the
“Bankruptcy Court has not yet approved the Plan and will not do so until after a hearing at which all objections will
be heard and considered”).
46 	Were the confirmation process in the Debtors’ cases to be impeded or postponed by the granting of a stay
pending appeal, as the Court noted in its prior decision denying a stay pending appeal in these cases, numerous
potential harms may befall the Debtors, including, but not limited to, (i) lost strategic opportunities; (ii) difficulty in
recruiting and retaining talent; (iii) incurrence of administrative and professional expenses; (iv) placing plan
settlements in jeopardy; and (v) exposing the equity to be granted to non-moving creditors to market volatility and
other risks. See In re Sabine, 548 B.R. at 683 (citing In re Tribune Co., 477 B.R. 465, 478-80 (Bankr. D. Del.
2012); Adelphia, 361 B.R. at 354).
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Nordheim has failed to demonstrate a substantial possibility of success on its appeal of
the Rejection Order. 	As the Debtors point out, Nordheim does not challenge (i) the Court’s
application of the business judgment test in the context of the Debtors’ rejection of contracts
pursuant to section 365 of the Bankruptcy Code and (ii) the Court’s resulting conclusion that the
Debtors’ determination to reject the Nordheim Agreements was a reasonable exercise of their
business judgment. Moreover, even if an appellate court were to conclude that the covenants at
issue in the Nordheim Agreements run with the land and are not subject to “rejection,” such a
ruling would not affect the Court’s grant of authority to the Debtors to reject the Nordheim
Agreements while preserving such real property rights as Nordheim may have.47
With respect to the Nordheim Summary Judgment Order, the Court acknowledges that
there is more than a trivial possibility that some portion of the Summary Judgment Decision may
be reversed or modified on appeal. Notwithstanding the fact that the Rejection Stay Motion and
the Summary Judgment Stay Motion misstate certain portions of the Court’s rulings, the Court
declines to restate its conclusions here; instead, it observes that reasonable judicial minds could
disagree on certain unsettled issues of Texas law.48 The presence of an uncertain legal
framework and the existence of some possibility of success on appeal on the Nordheim Summary
Judgment Order only, however, carry insufficient weight to provide a basis for granting a stay
pending appeal here, where the other three factors of the inquiry compel denial of a stay and
where the Court finds no substantial possibility of success on appeal of the Rejection Order.
47 	See Rejection Decision p. 9.
48 	Moreover, as the Debtors point out, because the Rejection Decision and the Summary Judgment Decision
rejected Nordheim’s arguments based on the specific terms of the Nordheim Agreements themselves, and because
the Court ruled in the alternative on the issue of horizontal privity, one possible outcome is that any appellate ruling
on open questions under Texas law may leave the Court’s rulings here unchanged.
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d. 	Public Interest
By the Rejection Stay Motion, Nordheim argues that “[t]he Court’s decision that the
dedication and transportation covenants do not create real property interests and therefore are
subject to rejection threatens the contractual framework on which the midstream gas gathering
and delivery industry relies.”49 It asserts that a stay is warranted because it will suspend the
“disruptive effect” of the Court’s rulings until the legal issues are resolved on appeal, which
would serve the public interest.
The Debtors contend that the public interest favors the expedient administration of
bankruptcy proceedings and cite the Court’s prior observation that “the goals of promoting the
restructuring of the Debtors’ obligations, the preservation of the Debtors’ business, and the
Debtors’ emergence from chapter 11 are issues of significant public interest.” See In re Sabine,
548 B.R. at 685; see also In re 473 West End Realty Corp., 507 B.R. at 508 (citing In re Taub,
2010 WL 3911360, at *6 (Bankr. E.D.N.Y. Oct. 1, 2010)) (“where, as here, those standards [for
a stay] are not met, a stay pending appeal would injure the interests of sound case management in
the bankruptcy process, and as a consequence, would also injure the public interest.”); In re
Metiom, Inc., 318 B.R. 263, 272 (S.D.N.Y. 2004) (“[t]his Court finds that the public interest in
the expeditious administration of bankruptcy cases as well as in the preservation of the [debtor’s]
assets for the purpose of paying creditors rather than litigation of claims lacking a substantial
possibility of success, outweighs the public interest in resolving the issues presented here on
appeal.”).
The Court agrees with the Debtors, and the Court’s statements regarding the “public
importance” prong of the test for direct certification, discussed above, bear noting here as well. 50
49 	Rejection Stay Motion p. 15.
50 	See pp. 9-11, supra.
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Moreover, Nordheim’s assertions regarding the effects of the Court’s decisions on the midstream
oil and gas industry ignore the fact-specific nature of the Court’s rulings, which pertained to the
covenants in the Nordheim Agreements only and were not rulings on “thousands of agreements
in the oil and gas industry.” 	If debtors in other chapter 11 cases move to reject contracts
containing similar covenants, the courts presiding over those cases will rule as they see fit based
on the terms of those contracts. The public interest does not support the grant of a stay pending
appeal here.
3. 	Conclusion
After balancing the parties’ interests here and after considering each of the factors in the
test for granting a stay pending appeal, for all of the foregoing reasons and in the exercise of its
discretion pursuant to Bankruptcy Rule 8007, the Court hereby denies the Rejection Stay Motion
and the Summary Judgment Stay Motion.
IT IS SO ORDERED.
Dated: June 15, 2016
New York, New York
/s/ Shelley C. Chapman
UNITED STATES BANKRUPTCY JUDGE
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