In Re: 15375 Memorial Corporation, et al., Santa Fe Minerals, Inc v. Bepco, L.P., f/k/a Bass Enterprises Production Company

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
Nos. 09-1391, 09-1432, 09-1608
_____________
In Re: 15375 Memorial Corporation, et al.,
Santa Fe Minerals, Inc.
Debtors/Appellants in 09-1391
Cross-Appellees in 09-1432
Cross-Appellees in 09-1608
v.
Bepco, L.P., f/k/a Bass Enterprises Production Company,
Appellee in 09-1391
Intervenor/Cross-Appellee in 09-1432
Intervenor/Appellant in 09-1608
Global Santa Fe Corporation; Global Santa Fe Corporation
Services, Inc.; Entities Holdings, Inc.,
Intervenors/Appellees in 09-1391
Intervenors/Appellants in 09-1432
Intervenors/Appellees in 09-1608
On Appeal from the United States District Court
for the District of Delaware

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2
District Court Nos. 1-08-cv-00313, 1-08-cv-00314,
1-08-cv-00318, 1-08-cv-00319,
1-08-cv-00321; 1-08-cv-00322;
1-08-cv-00325; 1-08-cv-00326
District Judge: The Honorable Sue L. Robinson
Argued September 14, 2009
Before: SLOVITER, FUENTES, and SMITH, Circuit Judges
Filed: December 22, 2009
John D. Demmy (Argued)
Stevens & Lee
1105 North Market Street
Suite 700
Wilmington, DE 19801
Counsel for15375 Memorial Corp. and
Santa Fe Minerals, Inc.
Gregory W. Werkheiser (Argued)
Morris, Nichols, Arsht & Tunnell
Suite 1800
1201 North Market Street
P.O. Box 1347
Wilmington, DE 19899
Counsel for BEPCO L.P., f/k/a Bass Enterprises
Production Co.

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3
Philip G. Eisenberg (Argued)
Locke Lord Bissell & Liddell
600 Travis Street
3400 JP Morgan Chase Tower
Houston, TX 77002
Kevin J. Mangan
Francis A. Monaco, Jr.
Womble, Carlyle, Sandridge & Rice
222 Delaware Avenue
Suite 1501
Wilmington, DE 19801
Counsel for Global Santa Fe Corp.,
Global Santa Fe Corporate Services Inc., and Entities
Holdings, Inc.
OPINION
SMITH, Circuit Judge.
This appeal asks us to determine whether Chapter 11
bankruptcy petitions filed by Santa Fe Minerals, Inc. and 15375
Memorial Corporation (together, the “Debtors”) were filed in
good faith. There is ample evidence to support the finding of
the District Court that the Debtors’ bankruptcy petitions served
no valid bankruptcy purpose and were used primarily as a
litigation tactic to protect the Debtors and their parent

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The District Court had subject matter jurisdiction over1
this bankruptcy appeal under 28 U.S.C. § 158(a), and we
exercise jurisdiction under 28 U.S.C. § 158(d). “Because the
District Court sat below as an appellate court, [we] conduct[] the
same review of the Bankruptcy Court’s order as did the District
Court.” Baroda Hill Invs., Ltd. v. Telegroup, Inc. (In re
Telegroup, Inc.), 281 F.3d 133, 136 (3d Cir. 2002); accord
Former Employees of Builders Square Retail Stores v.
Hechinger Inv. Co. of Del. (In re Hechinger Inv. Co. of Del.),
298 F.3d 219, 224 (3d Cir. 2002).
Bass Enterprises Production Co., the appellee for the2
purpose of the good faith issue, argues that the Debtors’
bankruptcy petitions should be dismissed for “cause” under 11
U.S.C. § 1112(b), and that Chapter 11 was unavailable to Santa
Fe Minerals, Inc. because it was dissolved before its petition
was filed. Those issues need not be addressed in light of our
decision to affirm the District Court’s conclusion that the
4
companies from liability in pending litigations. Thus, we will
affirm the District Court’s order dismissing the bankruptcy
petitions for lack of good faith.1
The Debtors raise two issues in this appeal. First, they
argue that the District Court incorrectly exercised plenary
review, instead of review for an abuse of discretion, of the good
faith inquiry. Second, they argue that the District Court erred in
concluding that they did not file their bankruptcy petitions in
good faith.2

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Debtors’ bankruptcy petitions were not filed in good faith.
5
I.
The historical and narrative facts in this case are not
disputed. The District Court, finding no clear error in the
Bankruptcy Court’s findings of fact, adopted those facts for the
purposes of its decision, BEPCO, L.P. v. 15375 Mem’l Corp. (In
re 15375 Mem’l Corp. III), 400 B.R. 420, 423 n.4 (D. Del.
2009), and we do so as well. These facts were ascertained
during a three-day trial held by the Bankruptcy Court to decide
several motions, including a motion by Bass Enterprises
Production Co. (“BEPCO”) to dismiss the Debtors’ Chapter 11
petitions for lack of good faith. Santa Fe Minerals, Inc. v.
BEPCO, L.P. (In re 15375 Mem’l Corp. I), 382 B.R. 652, 658
(Bankr. D. Del. 2008).
The Parties
The parties in this case are all companies involved in oil
and gas exploration. The Debtors, 15375 Memorial Corporation
(“Memorial”) and Santa Fe Minerals, Inc. (“Santa Fe”), are both
subsidiaries of GlobalSantaFe Corporation (“GSF”). Id. at 660.
Both subsidiaries list the address of the U.S. headquarters for
GSF, 15375 Memorial Drive, Houston, Texas, as their address.
Id. Neither company, however, actually has offices at that
address or at any other location. Id.

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The relevant Wyoming statute describing claims3
permitted against dissolved corporations states:
6
Memorial is a holding company incorporated in Delaware
and is the immediate parent of Santa Fe. Id. It has no
employees and engages in no business other than acting as the
sole shareholder of Santa Fe. Id. In June 2001, Memorial
voluntarily dissolved, but that dissolution was revoked in June
2004 “under the advice of counsel[.]” Id.
Santa Fe was an oil and gas exploration company
incorporated in Wyoming. Id. On December 8, 2000, id. at 663,
it filed for dissolution under Wyoming law, id. at 660. At that
time, “Santa Fe’s assets were upstreamed to [GSF and related
entities] or other of the Debtors’ affiliates[.]” Id. at 662. “Santa
Fe’s dissolution [permits] it . . . to act only through its sole
shareholder, Memorial, in furtherance of winding up its
remaining business.” Id. at 660. It “currently has no officers,
directors or employees and engages in no business.” Id.
Despite its December 8, 2000, dissolution, Santa Fe did not
publish notice of that dissolution until August 4, 2006. Id. at
663. As a result, Santa Fe may not have been able to avail itself
of the Wyoming state law statute of limitations defense for
dissolved corporations until August 4, 2009. Wyo. Stat. Ann. §
17-16-1407 (providing three year statute of limitations starting
from date of publication of notice of dissolution for claims
against dissolved corporations).3

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(a) A dissolved corporation may also publish
notice of its dissolution and request that persons
with claims against the corporation present them
in accordance with the notice.
(b) The notice shall:
(i) Be published one (1) time in a
newspaper of general circulation in
the county where the dissolved
corporation’s principal office, or, if
none in this state, its registered
office, is or was last located;
(ii) Describe the information that
shall be included in a claim and
provide a mailing address where
the claim may be sent; and
(iii) State that a claim against the
corporation will be barred unless a
proceeding to enforce the claim is
commenced within three (3) years
or the applicable statute of
limitations, whichever is less, after
the publication of the notice.
(c) If the dissolved corporation publishes a
newspaper notice in accordance with subsection
(b) of this section, the claim of each of the
following claimants is barred unless the claimant
commences a proceeding to enforce the claim
against the dissolved corporation within three (3)
years after the publication date of the newspaper
7

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notice:
(i) A claimant who did not receive
w ritten no tice u nd e r W .S .
17-16-1406;
(ii) A claimant whose claim was
timely sent to the dissolved
corporation but not acted on; or
(iii) A claimant whose claim is
contingent or based on an event
occurring after the effective date of
dissolution.
(d) A claim that is not barred by W.S. 17-16-
1406(c) or subsection (c) of this section may be
enforced:
(i) A gainst the dissolved
corporation, to the extent of its
undistributed assets; or
(ii) Except as provided in W.S.
17-16-1408(d), if the assets have
been distributed in liquidation,
against a shareholder of the
dissolved corporation to the extent
of his pro rata share of the claim or
the corporate assets distributed to
him in liquidation, whichever is
less, but a shareholder’s total
liability for all claims under this
section may not exceed the total
amount of assets distributed to the
8

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shareholder.
Wyo. Stat. Ann. § 17-16-1407.
9
GSF is a Cayman Islands corporation that indirectly owns
Memorial and Santa Fe. In re 15375 Mem’l Corp. I, 382 B.R.
at 660-61. It also owns numerous other companies (collectively,
including GSF, the “GSF Entities”), including Entities Holdings,
Inc. (“EHI”) and GlobalSantaFe Corporate Services, Inc.
(“GSFCSI”). Id. The GSF Entities, together with Memorial and
Santa Fe, are “one of the world’s largest offshore oil and gas
drilling contractors and a leading provider of drilling services.”
Id. at 660.
EHI is a wholly owned, direct subsidiary of GSF. Id. It
is the parent and sole shareholder of Memorial, id. at 660-61,
and it also owns several other subsidiaries, id. at 661. EHI is a
holding company and has no employees. Id.
GSFCSI is a wholly owned, indirect subsidiary of GSF.
Id. It provides corporate services to Memorial, Santa Fe, and
the GSF Entities. Id. GSFCSI, among other things, maintains
the Debtors’ books and records. Id.
David E. Faure, the vice president and assistant secretary
of Memorial, was charged with marshaling the Debtors’ assets

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Other individuals holding positions with the Debtors4
have also held positions in the GSF Entities. In re 15375 Mem’l
Corp. I, 382 B.R. at 661-62. At all times relevant to this appeal,
all of Memorial’s officers were also officers of EHI and
GSFCSI, and all of Memorial’s directors held positions at GSF:
one was the president and chief executive officer of GSF, one
was the executive vice president and chief operating officer of
GSF, and one was the senior vice president of human resources
for GSF. Id. at 662. In addition, three EHI directors held
positions as GSF officers. Id.
Faure explained McCullough’s role in the operation of5
EHI, Memorial, and Santa Fe during his cross examination at
10
prior to the filings of their bankruptcy petitions, dealing with the
Debtors’ liabilities, and working on the Debtors’ bankruptcy
cases. Id. Aside from handling these tasks, Faure held other
important decision-making responsibilities at GSFCSI, EHI, and
Memorial. Id. He was “employed by GSFCSI as vice president,
assistant general counsel and assistant secretary.” Id. As an
employee of GSFCSI, Faure provided “legal services to EHI,
primarily assisting it with the defense of litigation.” Id. “[He]
also serve[d] as vice president and assistant secretary of both
Memorial and EHI.” Id. In carrying out his various duties,4
Faure reported to and took direction from James L. McCullough,
the senior vice president and general counsel of GSF. Id.
Although McCullough had no formal title at Santa Fe or
Memorial, Faure had to receive McCullough’s approval before
he could file the Debtors’ bankruptcy petitions. Faure5

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trial:
Q: And [McCullough is] someone that you
typically report to in the course of your
duties, isn’t [he]?
A: Correct.
Q: And do you also take direction from him
from time to time?
A: From time to time, yes.
Q: Do you take direction from him in
connection with matters related to
Memorial?
A: I’ve taken legal advice from him,
especially pre-petition. But post-petition
we’ve had separate counsels for Memorial
and the GSF entities.
Q: So it’s your testimony that since the filing
of the bankruptcy cases he has never given
you any manner of direction as to what
Memorial should or should not be doing?
A: Correct.
Q: And you were also reporting and taking
direction from him during the pendency of
the [Tebow] litigation. Is that the case?
A: Correct.
Q: And when you were preparing for these
bankruptcy cases and the filing of these
cases did you also have occasion to consult
with [McCullough]?
11

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A: Yes, I did.
Q: And did he provide direction on matters
relating to the anticipated filing of the
bankruptcy cases?
A: Well, he approved the filing. I needed his
approval to file.
Q: He authorized it, right?
A: Correct.
12
consulted McCullough while preparing the Debtors’ bankruptcy
petitions. Id. Faure also sought legal advice from McCullough
regarding Memorial on matters unrelated to bankruptcy prior to
filing its bankruptcy petition. Id.
As part of Faure’s effort to marshal the Debtors’ assets,
he oversaw the recovery of funds from the GSF Entities for the
benefit of the Debtors’ estates. Id. This included seeking
recovery of funds that were “upstreamed to EHI and Memorial
after Santa Fe’s dissolution.” Id. After an initial investigation,
though, Faure determined that the Debtors’ potential claims
against the GSF Entities were not viable. Id. Faure’s
determination is unsurprising considering that he also testified
that “he [did] not think [the claims against the GSF Entities]
‘[we]re very good claims.’” Id. “Faure further testified that
filing a lawsuit against [GSF] on behalf of the Debtors to
facilitate the return of upstreamed funds would jeopardize his
job.” Id.

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BEPCO is a limited partnership that is, among other
things, challenging the Debtors’ bankruptcy petitions for lack of
good faith. Its involvement in the Debtors’ bankruptcies stems
from a property of which BEPCO and Santa Fe are both in the
chain of title, a 1938 mineral lease of land in Avoyelles Parish,
Louisiana (the “Tebow Property”). Both companies have been
accused of contaminating the Tebow Property. Id. at 663-66.
On April 27, 2007, BEPCO filed proofs of claim in the
Bankruptcy Court asserting a right to recover against the
Debtors and the GSF Entities all obligations and damages
arising out of or related to litigation concerning the Tebow
Property. Id. at 666.
The Tebow Litigation
On April 18, 2005, individuals affected by the
contamination of the Tebow Property (the “Tebow Plaintiffs”)
filed suit in Louisiana state court naming Santa Fe, BEPCO, and
others as defendants, seeking $320 million for the contamination
(the “Tebow Action”). Id. at 663-64. The Tebow Plaintiffs
alleged that “water produced from oil wells [on the Tebow
Property] was disposed of in unlined earthen pits on their
property[;] this water contained salt and dangerous minerals,
metals, and radioactive materials, and the contamination
migrated both horizontally and vertically into the surrounding
soil and ground water.” Id. Some of the pollutants entered and
contaminated a drinking water aquifer. Id. at 663-64.

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As a result of trial preparation, the Debtors learned that
the Tebow Plaintiffs’ “[e]xpert [r]eports indicated that[] the
worst contamination on the Tebow Property occurred in the East
Pit area—an area located on the 1938 [m]ineral [l]ease for
which both BEPCO and Santa Fe were in the chain of title.” Id.
at 664. They also learned from the work of their own expert and
that of the Tebow Plaintiffs’ expert, that the East Pit was
probably constructed after 1965 and that BEPCO assigned the
1938 mineral lease to a different company in 1964. Id. Thus,
Santa Fe ascertained that BEPCO’s liability for contamination
caused by the East Pit was likely to be less than companies like
it, i.e., companies that used the Tebow Property after 1964. Id.
In short, Santa Fe “knew that the [e]xpert [r]eports showed that
it, not BEPCO, was to blame for pollution around the East Pit.”
Id. Santa Fe also learned that the contamination caused to the
drinking water aquifer by the East Pit would cost approximately
$189 million to clean. Id.
The Debtors were also aware that filing for bankruptcy
would permit them to avoid liability in the Tebow Action. Id.
at 665. The Tebow Plaintiffs’ complaint stated that “if a party
. . . has or intends to file for bankruptcy concerning any of the
claims alleged . . . , it is the express intention of Plaintiffs not to
pursue those claims or party or parties in this action, even if
such party or parties has been inadvertently named as a
defendant.” Id.
The Tebow Action was scheduled for trial on October 11,

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15
2006. Id. Leading up to the trial, BEPCO and Santa Fe
participated in depositions, hired experts, and engaged in fact
and expert discovery. Id. Santa Fe hoped that its dissolution
under Wyoming law would be a defense to the Tebow Action,
but it was concerned that its failure to publish notice until 2006
would undermine the defense. Id. at 667 (“[The] Debtors
determined in the Summer of 2006 that the failure to give proper
notice in connection with Santa Fe’s dissolution created a risk
to Santa Fe’s shareholders for its liabilities in litigations,
including the Tebow Action.”). In June 2006, the Tebow
Plaintiffs and BEPCO informed Santa Fe that they would pursue
the GSF Entities under an alter ego theory. Id. Although the
record is unclear as to when, at some point during the Tebow
Action BEPCO asserted claims against Santa Fe and its insurers
for the damage done to the Tebow Property. Id. at 686-92. It
also asserted alter ego claims against the GSF Entities. Id.
The Demand Note
On August 8, 2006, eight days before the Debtors filed
for bankruptcy, Memorial, through Faure, executed a demand
note issued by EHI. Id. at 667. The demand note provided a
revolving credit line of $500,000 in exchange for, among other
things, Memorial (i) “accept[ing] all liabilities existing or arising
from the activities of [Santa Fe]” and agreeing that “(ii) it is not
a single business enterprise with [GSF] or any affiliate of
[GSF]” and that “(iii) it will defend and indemnify [GSF] from
any claims, whether based on an alter-ego, single business

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During cross-examination, Faure testified as follows:6
Q: [I]s your understanding of the meaning of
romanette (i): “If valid, that Memorial has
agreed to assume responsibility for all the
liabilities of Santa Fe Minerals”?
A: Says: “As consideration for the issuance of
this note, maker agrees that, one, it accepts
all liabilities existing or arising from
activities of Santa Fe Minerals, Inc., a
dissolved subsidiary of maker.” So
whatever liabilities remained and existed
were kept on the Memorial side of this
transaction.
Q: Assumed by Memorial, were they not?
A: Hmm?
Q: Under the terms of this note, assumed by
Memorial?
A: Correct, and not transferred to [EHI].
16
enterprise or other principle, relating to [Santa Fe’s] operations.”
Id. at 668. A few days later, Memorial obtained $100,000 from
EHI under the note to pay bankruptcy costs. Id.
Faure testified at trial that clause (i) of the demand note
was intended to protect EHI and other GSF Entities from
liability arising from Santa Fe’s activities, including the Tebow
Action. Id. Clause (ii), according to Faure, stipulated that6

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“Memorial had no claim . . . against EHI, GSF Corp. or GSF
Corp.’s affiliates based on a single business enterprise theory.”
Id. This clause was not objectionable to Faure because, based
on his due diligence, he had concluded that “Memorial was not
a single business enterprise with any of the [GSF Entities].” Id.
at 669. Clause (iii) “provided for Memorial to defend and
indemnify EHI from any claim related to Santa Fe’s operations,
whether based on alter ego, single business enterprise or other
theories.” Id. at 668. Together, the three clauses were included
in the demand note “so that EHI and other [GSF Entities] would
not be prejudiced in the face of assertions being made by the
Tebow Plaintiffs that GSFCSI’s [designation of Faure as the
Debtors’ representative in bankruptcy] and [his assistance] in
the defense of the Tebow Action rendered such entities liable as
a single business enterprise.” Id. at 669. The terms of the
demand note were negotiated between Faure and Drew Baker,
an attorney employed by GSFCSI who provided legal counsel to
EHI. Id.
The Bankruptcy Filings and their Effect on the Tebow Action
On August 16, 2006, eight days after executing the
demand note, the Debtors filed Chapter 11 bankruptcy petitions
in the United States Bankruptcy Court for the District of
Delaware. The next day, the Tebow Plaintiffs dismissed Santa
Fe from the Tebow Action. Id. at 665.
On August 22, 2006, BEPCO filed a third party

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18
complaint in the Tebow Action seeking relief from the GSF
Entities under an alter ego theory. Id. That complaint was
dismissed without prejudice on the same day for procedural
reasons. Id. On August 25, 2006, BEPCO refiled its third party
complaint. Id. In response, the Debtors accused BEPCO of
violating the automatic stay of litigation outside the bankruptcy
proceedings. Id. On October 19, 2006, BEPCO sought relief
from the Bankruptcy Court’s automatic stay to file its third party
complaint in Louisiana state court, and the Bankruptcy Court
denied BEPCO’s request. Id. at 666.
Four months later, on February 19, 2007, BEPCO
proceeded to trial in the Tebow Action and settled with the
Tebow Plaintiffs before a judgment was rendered. Id. In the
settlement, BEPCO agreed to pay the Tebow Plaintiffs $20
million and assist in cleaning the Tebow Property in exchange
for an assignment to BEPCO of the Tebow Plaintiffs’ property
damage claims. Id. On April 27, 2007, BEPCO filed a proof of
claim in the Bankruptcy Court against the Debtors based on
Santa Fe’s liabilities in the Tebow Action. Id. BEPCO asserted
claims against Santa Fe for assignment, contribution, indemnity,
and for the contamination of the Tebow Property. Id. BEPCO
also asserted claims against Memorial and the GSF Entities
based on Wyoming law “authorizing the recovery of
distributions made at dissolution and alter ego (and other
related) theories.” Id.
On February 15, 2008, the Bankruptcy Court granted

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19
BEPCO relief from the automatic stay to pursue its action
against Santa Fe and Santa Fe’s insurers in Louisiana state court.
Id. at 686-92. The Bankruptcy Court also held that BEPCO’s
assertion of alter ego claims against Memorial and the GSF
Entities did not violate the automatic stay. Id. at 692. The
Bankruptcy Court did not, however, permit BEPCO to proceed
with its alter ego claims in Louisiana state court at that time. Id.
at 695. It left open the issue of whether Memorial and the GSF
Entities could be held liable under an alter ego theory,
requesting further briefing on the issue by the parties. Id. It did
so in part because the Debtors insisted that any alter ego claim
against the GSF Entities was property of their estates and, thus,
could not be asserted by BEPCO. See id. at 677.
In sum, after the Debtors filed for bankruptcy, the Tebow
Plaintiffs dismissed Santa Fe from the Tebow Action and settled
with BEPCO. As part of that settlement, BEPCO was assigned
the Tebow Plaintiffs’ claims for property damage. BEPCO
asserted those claims against Santa Fe, Santa Fe’s insurers,
Memorial, and the GSF Entities in Louisiana state court. The
Bankruptcy Court granted BEPCO relief from the automatic stay
for the claims against Santa Fe and its insurers, but it did not
permit BEPCO to proceed with its alter ego claims against
Memorial and the GSF Entities.
The Litigations Pending at the Time of the Debtors’
Bankruptcy Petitions

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20
At the time the Debtors filed their bankruptcy petitions,
they were on notice of three pending lawsuits against them: the
Tebow Action, an Oklahoma state court action for property
damage (the “Ellison Action”), and a California state court
personal injury action (the “Harris Action”). Id. at 669-70.
The Ellison Action was filed in 2001 and principally
targeted a disposal company, FPC Disposal, Inc., for damage to
land caused by its “construction, operation and maintenance of
a commercial disposal facility.” Id. at 669. Santa Fe was named
as a defendant because it was “one of many parties who
disposed of materials at the facility.” Id. “BP Amoco
Corporation, a co-defendant of Santa Fe’s in the Ellison Action
against which Santa Fe asserted a right of indemnity, [defended]
the Ellison Action on Santa Fe’s behalf.” Id. As a result, “Santa
Fe incurred no material defense costs or expenses in [the case].”
Id. The Ellison Action settled on February 19, 2007, and Santa
Fe was released from liability without making any contribution
to the settlement. Id.
The Harris Action was filed in California state court and
“relat[ed] to [Memorial’s] past ownership of an allegedly
contaminated site, located in Alhambra, California[.]” Id. The
current status of this action is unclear, but at the time the
Debtors’ filed their bankruptcy petitions they had not “hired
counsel or incurred material expenses” to defend the action. Id.
at 670.

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21
In addition to these three lawsuits, the Debtors had notice
of three others that they believed could affect their interests. Id.
Two asbestos-related lawsuits in California state court were
pending against a predecessor of Memorial (the “Sinz and Troia
Actions”). Id. Debtors were also concerned about a so-called
oilfield legacy suit in Louisiana for which they had received a
request for non-party discovery (the “Dore Action”). Id.
The Insurance Review Project
Faure and GSFCSI conducted an extensive insurance
review between October 2006 and May 2007 to determine the
extent of Santa Fe’s insurance coverage. Id. at 673. They
discovered that the Debtors had policies that covered the claims
asserted in the Tebow Action and other policies that could
possibly cover the Sinz and Troia Actions. Id. at 673-74. “The
[i]nsurance [r]eview . . . was undertaken for the benefit of the
entire GlobalSantaFe corporate family.” Id. at 673. “The
overall goal . . . was to compile a database of policies that could
be reviewed as claims came up against any [GSF-related entity],
whether it be the Debtors or others.” Id.
The Debtors’ Assets
Aside from the insurance policies, Debtors have few
assets. Id. at 676-78. Memorial, at the time of filing for
bankruptcy, had the $100,000 advanced by EHI under the
demand note. Id. at 676. Presumably this cash has been spent

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22
on litigation and accounting fees related to the bankruptcy.
Santa Fe had no cash when it filed for bankruptcy. Id. Neither
company holds any real property. Id.
The Debtors asserted a handful of claims for cash as
assets in their bankruptcy petitions. Id. at 676-78. Santa Fe
claimed a right to $60,000 from a class action settlement arising
from a suit against Conoco. Id. at 676. It also claimed
approximately $21,000 in escheated funds held by the state of
Texas, id., and approximately $500,000 from Memorial for
assets that were upstreamed to Memorial upon its liquidation, id.
at 677. Memorial listed an intercompany tax refund claim
against an affiliate for $5,722. Id. at 676. The Debtors also
claimed a right to indemnity in the Tebow Action “to reduce the
extent of [their] exposure were someone else to be successful in
recovering on a claim against [them] within [the] scope of the
matters for which [they] are entitled to indemnity and/or
contribution.” Id. Finally, the “Debtors . . . assert[ed] that all
claims that BEPCO seeks to assert against the GSF Entities
arising out of or related to the Tebow Action on the basis of
alter ego, veil piercing or single business enterprise or similar
theories . . . [we]re property of their estates.” Id. at 677.
The Debtors’ Reasons for Filing for Bankruptcy
The Debtors filed their Chapter 11 bankruptcy petitions
because they were concerned about their ongoing and pending
litigations. In particular, they “considered the wearing effect of

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23
piecemeal litigation involving one case after another over a
possible finite pot of money; the ability to obtain jurisdiction
over a geographically disparate group of claimants (located in
Texas, Oklahoma, Louisiana and California, among other
states); and possible multiple claims on the same insurance
policies and the problem of dividing up the proceeds of such
policies among multiple claimants.” Id. at 677-78. Ultimately,
though, the Tebow Action was the “principal factor” in the
Debtors’ decisions to file for bankruptcy. Id. at 678. The
Debtors were unsure of whether Santa Fe would be able to
assert a dissolution defense because of its defective notice of
dissolution. They feared alter ego liability for Memorial and the
GSF Entities. Id.
The Procedural History Leading to this Appeal
On February 15, 2008, the Bankruptcy Court denied
BEPCO’s motion to dismiss the Debtors’ petitions for lack of
good faith and on April 16, 2008, denied BEPCO’s motion for
reconsideration. On April 28, 2008, BEPCO appealed to the
United States District Court for the District of Delaware. On
January 27, 2009, the District Court reversed and remanded the
case, concluding that the Debtors’ petitions should be dismissed
for lack of good faith. On February 9, 2009, the Debtors filed
their timely notice of appeal to this Court.
II.

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24
The Bankruptcy Court’s refusal to dismiss a Chapter 11
bankruptcy petition for want of good faith is reviewed for an
abuse of discretion. NMSBPCSLDHB, L.P. v. Integrated
Telecom Express, Inc. (In re Integrated Telecom Express, Inc.),
384 F.3d 108, 118 (3d Cir. 2004). “‘[A]n abuse of discretion
exists where the district court’s decision rests upon a clearly
erroneous finding of fact, an errant conclusion of law, or an
improper application of law to fact.’” Id. (quoting Official
Comm. of Unsecured Creditors v. Nucor Corp. (In re SGL
Carbon Corp.), 200 F.3d 154, 159 (3d Cir. 1999)). “[W]e
review the findings of fact leading to the decision for clear error
and exercise plenary review over the [district] court’s
conclusions of law.” In re SGL Carbon Corp., 200 F.3d at 159.
The issue in this appeal, whether the undisputed facts
support the Bankruptcy Court’s determination that the Debtors
filed their bankruptcy petitions in good faith, calls for reviewing
the Bankruptcy Court’s application of law to the facts of this
case. Such review requires analyzing not only basic and
inferred facts, which are subject to clearly erroneous review, but
also ultimate facts—facts that are “usually expressed in the
language of a standard enunciated by case-law rule or by statute,
e.g., an actor’s conduct was negligent; the injury occurred in the
course of employment; the rate is reasonable; the company has
refused to bargain collectively.” Universal Minerals, Inc. v.
C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir. 1981) (quoting
Smith v. Harris, 644 F.3d 985, 990 n.1 (3d Cir. 1981) (Aldisert,
J., concurring)). Ultimate facts are “conclusion[s] of law or at

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25
least . . . determination[s] of . . . mixed question[s] of law and
fact.” Id. The determination of whether the basic and inferred
facts of a case support the conclusion of good faith in the filing
of a Chapter 11 bankruptcy petition, i.e., whether the application
of law to fact was proper, is reviewed as an ultimate fact and is
subject to plenary review because it is, essentially, a conclusion
of law. Universal Minerals, Inc., 669 F.2d at 102; see also In re
SGL Carbon Corp., 200 F.3d at 159.
The District Court correctly exercised plenary review, but
it misread authority in reaching its conclusion that plenary
review was appropriate. It stated, citing In re Hechinger
Investment Co. of Delaware, 298 F.3d at 224, and In re
Telegroup, Inc., 281 F.3d at 136, that its “responsibilities [we]re
. . . informed by the directive of [this Court], which effectively
reviews on a de novo basis bankruptcy court opinions.” In re
15375 Mem’l Corp. III, 400 B.R. at 423 (citations omitted). The
District Court’s reliance on these cases was misplaced. In these
cases we stated only that our review “effectively amounts to
review of the [B]ankruptcy [C]ourt’s opinion in the first
instance.” In re Hechinger Inv. Co. of Del., 298 F.3d at 224
(citation omitted). In other words, “[b]ecause the District Court
sat below as an appellate court, [we] conduct[] the same review
of the Bankruptcy Court’s order as did the District Court.” In re
Telegroup, Inc., 281 F.3d at 136 (citation omitted). Nowhere
did we state that we apply plenary review to all bankruptcy court
decisions regardless of the issues raised. At all events, this error
by the District Court was harmless.

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26
The Debtors raise three objections to plenary review of
the good faith inquiry. First, they assert that the District Court
improperly departed from the Bankruptcy Court’s findings of
fact without concluding that those facts were clearly erroneous.
Thus, according to the Debtors, the District Court’s conclusion
that the Debtors’ lacked good faith cannot stand. Because we
disagree with the Debtors’ premise, we must reject their
conclusion. Aside from finding no clear error in the Bankruptcy
Court’s findings of fact, In re 13575 Mem’l Corp. III, 400 B.R.
at 423 n.4, the District Court’s opinion was peppered with
citations to the Bankruptcy Court’s fact finding. The District
Court departed from the Bankruptcy Court’s decision only in its
determinations of ultimate facts. Because its review of those
determinations was plenary, it was free to do so.
Second, the Debtors claim that an abuse of discretion can
occur only when no reasonable person would adopt the
Bankruptcy Court’s determination of the good faith inquiry. In
support of their view, the Debtors rely on Solow v. PPI
Enterprises (U.S.), Inc. (In re PPI Enterprises (U.S.), Inc.), 324
F.3d 197 (3d Cir. 2003), but that decision only stated that “[a]n
abuse of discretion can occur when no reasonable person would
adopt . . . the [bankruptcy court’s] view,” id. at 211 (emphasis
added) (quoting Rode v. Dellarciprete, 892 F.2d 1177, 1182 (3d
Cir. 1990)). That case does not hold that an abuse of discretion
can only occur under those circumstances. Indeed, in In re PPI
Enterprises (U.S.), Inc., this Court followed In re SGL Carbon
Corp., explaining that “abuse exists [where there is a] clearly

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27
erroneous finding of fact, errant legal conclusion[], or improper
application of fact to law.” 324 F.3d at 211 (citing In re SGL
Carbon Corp., 200 F.3d at 159).
Third, the Debtors make much of the District Court’s
failure to explicitly declare that “the Bankruptcy Court
improperly applied the law to the facts,” using those precise
words. We fail to see the significance of the Debtors’ argument.
Regardless of whether the District Court used those exact words,
its reasoning compels the conclusion that the Bankruptcy Court
improperly applied the law to the facts. After “[e]xamining the
facts in totality,” In re 13575 Mem’l Corp. III, 400 B.R. at 429,
and without disturbing the Bankruptcy Court’s factual findings,
id. at 423 n.4, the District Court concluded that the Debtors’
filings lacked good faith, id. at 429. In particular, the District
Court identified the questions relevant to the good faith inquiry
and determined that (1) the “record does not support the
conclusion that [the] Debtors’ petitions have captured value for
the estates that otherwise would have been lost” and that (2) “the
record supports the conclusion that [the] Debtors’ primary
objective in filing the petitions was to gain a tactical advantage
in litigation.” Id. Both of these determinations were based on
applications of law to fact and, therefore, were correctly subject
to plenary review.
In sum, while the District Court cited the wrong
authority, it correctly determined the standard of review. Its
mistake was harmless error. The proper standard of review for

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Almost every federal Court of Appeals follows some7
variation of this approach to the good faith filing requirement
for Chapter 11 petitions. See, e.g., Trident Assocs. Ltd. P’ship
v. Metro. Life Ins. Co. (In re Trident Assocs. Ltd. P’ship), 52
F.3d 127, 130-31 (6th Cir. 1995) (explaining that petition may
be dismissed for lack of good faith under 11 U.S.C. § 1112(b)
based on the totality of the circumstances); Marsch v. Marsch
(In re Marsch), 36 F.3d 825, 828 (9th Cir. 1994) (same);
Phoenix Piccadilly, Ltd. v. Life Ins. Co. of Va. (In re Phoenix
Piccadilly, Ltd.), 849 F.2d 1393, 1394-95 (11th Cir. 1988)
(same); Little Creek Dev. Co. v. Commonwealth Mortgage
Corp. (In re Little Creek Dev. Co.), 779 F.2d 1068, 1072-73 (5th
28
the ultimate determination of good faith is plenary where the
review pertains to whether the Bankruptcy Court made an
improper application of law to fact.
III.
Chapter 11 bankruptcy petitions are “subject to dismissal
under 11 U.S.C. § 1112(b) unless filed in good faith and the
burden is on the bankruptcy petitioner to establish [good faith].”
In re Integrated Telecom Express, Inc., 384 F.3d at 118
(citations omitted). “Whether the good faith requirement has
been satisfied is a ‘fact intensive inquiry’ in which the court
must examine ‘the totality of facts and circumstances’ and
determine where a ‘petition falls along the spectrum ranging
from the clearly acceptable to the patently abusive.’” Id.
(quoting In re SGL Carbon Corp., 200 F.3d at 162). We7

-- 28 of 49 --

Cir. 1986) (noting that petition may be dismissed under 11
U.S.C. § 1112(b) and listing “a conglomerate of factors” that
should be considered); First Nat’l Bank of Sioux City v. Kerr (In
re Kerr), 908 F.2d 400, 404 (8th Cir. 1990) (explaining that
petition may be dismissed under 11 U.S.C. § 1112(b) if debtor
had a “pattern of concealment, evasion, and direct violations of
the Code or court order which clearly establishes an improper
motive”); C-TC 9th Ave. P’ship v. Norton Co. (In re C-TC 9th
Ave. P’ship), 113 F.3d 1304, 1310-12 (2d Cir. 1997) (dismissing
petition based on numerous factors); Carolin Corp. v. Miller,
886 F.2d 693, 700-01 (4th Cir. 1989) (“requir[ing] that both
objective futility and subjective bad faith be shown in order to
warrant dismissals for want of good faith”).
Notably, these inquiries are based more on objective8
analysis of whether the debtor has sought to step outside the
“equitable limitations” of Chapter 11 than the subjective intent
of the debtor:
The term “good faith” is somewhat misleading.
Though it suggests that the debtor’s subjective
intent is determinative, this is not the case.
Instead, the “good faith” filing requirement
encompasses several, distinct equitable limitations
29
“focus[] on two inquiries that are particularly relevant to the
question of good faith: (1) whether the petition serves a valid
bankruptcy purpose” and “(2) whether the petition is filed
merely to obtain a tactical litigation advantage.” Id. at 119-20
(citing In re SGL Carbon Corp., 200 F.3d at 165).8

-- 29 of 49 --

that courts have placed on Chapter 11 filings.
Courts have implied such limitations to deter
filings that seek to achieve objectives outside the
legitimate scope of the bankruptcy laws.
In re SGL Carbon Corp., 200 F.3d at 165 (quoting In re
Marsch, 36 F.3d at 828). That being said, the good faith
analysis ultimately is based on the “the totality of facts and
circumstances,” so the subjective intent of the debtor may
play a role in a court’s determination of good faith. In re SGL
Carbon Corp., 200 F.3d at 165. In other words, our focus on
whether there is a valid bankruptcy purpose and whether the
filing was made as a litigation tactic is not intended to limit
consideration of other facts and circumstances. Id. at 166
n.16. “Indeed, ‘no list is exhaustive of all the factors which
could be relevant when analyzing a particular debtor’s good
faith.’” Id. (quoting Laguna Assocs. Ltd. P’ship v. Aetna Cas.
& Sur. Co. (In re Laguna Assoc. Ltd. P’ship), 30 F.3d 734,
738 (6th Cir. 1994)).
30
In this case, both inquiries compel dismissal of the
Debtors’ bankruptcy petitions for lack of good faith. The
petitions do not serve the valid bankruptcy purposes of
preserving a going concern or maximizing the values of the
Debtors’ estates. Moreover, the timing of the filing of the
bankruptcy petitions shows that the Debtors were not seeking
Chapter 11 protection for a valid bankruptcy purpose, but
instead were using the filings as a litigation tactic to avoid
liability in the Tebow Action and to protect the GSF Entities.

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31
Thus, based on the “totality of facts and circumstances” we
conclude that the Debtors’ bankruptcy petitions were not filed
in good faith. See id. at 118 (quoting In re SGL Carbon Corp.,
200 F.3d at 162).
A.
A party filing for Chapter 11 bankruptcy may prove that
its petition served a valid bankruptcy purpose by showing that
the petition “preserv[ed] a going concern or maximiz[ed] the
value of the debtor’s estate[.]” In re Integrated Telecom
Express, Inc., 384 F.3d at 120 (citing In re SGL Carbon Corp.,
200 F.3d at 165); see Bank of Am. Nat’l Trust & Sav. Ass’n v.
203 N. LaSalle St. P’ship, 526 U.S. 434, 453 (1999); Toibb v.
Radloff, 501 U.S. 157, 163-64 (1991). The Debtors, recognizing
that they have no going concerns to preserve—no employees,
offices, or business other than the handling of litigation—focus
their arguments on the latter inquiry.
“To say that liquidation under Chapter 11 maximizes the
value of an entity is to say that there is some value that
otherwise would be lost outside of bankruptcy.” In re
Integrated Telecom Express, Inc., 384 F.3d at 120 (citing
Elizabeth Warren, Bankruptcy Policymaking in an Imperfect
World, 92 Mich. L. Rev. 336, 350 (1993)). The Bankruptcy
Court identified eleven purported benefits of filing for
bankruptcy that it believed maximized the values of the Debtors’
estates. It believed that filing the bankruptcy petitions permitted

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32
the Debtors to:
(a) assert[] the automatic stay in connection with
the Tebow, Ellison[,] Harris, Sinz, Troia,
Boudreaux Actions, and other matters, to limit the
estate’s involvement in litigation other than in this
Bankruptcy Court;
(b) facilitate[] dismissal of Debtors as defendants
from the Ellison, Harris, Tebow, Sinz and Troia
Actions and, again, to centralize these claims in
the Bankruptcy Court forum;
(c) establish[] a bar date to set the number of
claims [and] fix[] the notice problem that existed
with respect to Santa Fe’s dissolution;
(d) . . . create[] a known universe of claims;
(e) analyze[] the BEPCO claims to be able to file
a motion contesting whether BEPCO ha[d] any
legally cognizable claim at all against Debtors;
(f) take[] advantage of the breathing spell
afforded by bankruptcy to inventory and analyze
potentially applicable insurance policies and
related information;
(g) pursuant to the Insurance Review Project[,]
discover[] the London Market Policies, which

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33
appear to provide coverage for legacy cases
(including the Tebow related claims) and other
insurance policies that may respond to other
claims in the Bankruptcy Cases (Sinz and Troia);
(h) commence[] and continue[] substantive
communications with insurers, including those
identified in connection with the Tebow Action
and those subsequently identified pursuant to the
Insurance Review Project;
(i) negotiate[] and propose[] a settlement of issues
with the GlobalSantaFe Entities under which,
inter alia, they will continue to cooperate in the
pursuit of insurance rights and will contribute
well over $1,000,000 in cash and other value so
that substantial value can be delivered to all the
creditors of the estates on their claims;
(j) formulate[] the [Liquidation] Plan; and
(k) continue to manage and search for assets.
In re 15375 Mem’l Corp. I, 382 B.R. at 685. At first blush, this
may appear an extensive list of activities designed to maximize
the Debtors’ estates. Closer examination, however, reveals that
the purported benefits identified did not add or preserve value
that would otherwise be unavailable to creditors outside of
bankruptcy. In re Integrated Telecom Express, Inc., 384 F.3d at
120; In re SGL Carbon Corp., 200 F.3d at 165 (requiring

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34
“Chapter 11 petitioners to act within the scope of the bankruptcy
laws to further a valid reorganizational purpose” to satisfy the
good faith filing requirement).
The first purported benefit amounts to nothing more than
the Debtors availing themselves of the automatic stay of
litigation outside of bankruptcy. “The protection of the
automatic stay,” however, “is not per se a valid justification for
a Chapter 11 filing; rather, it is a consequential benefit of an
otherwise good faith filing.” In re Integrated Telecom Express,
Inc., 384 F.3d at 128 (quoting In re HBA East, Inc., 87 B.R. 248,
262 (Bankr. E.D.N.Y. 1988)). As such, “courts universally
demand more of Chapter 11 petitions than a naked desire to stay
pending litigation,” and any perceived benefit of “‘the automatic
stay, without more, cannot convert a bad faith filing to a good
faith one.’” Id. (quoting In re HBA East, Inc., 87 B.R. at 262).
More generally, the “desire to take advantage of the protections
of the Code,” such as the automatic stay of litigation outside of
bankruptcy, “cannot establish good faith as a matter of law”
given “the truism that every bankruptcy petition seeks some
advantage offered in the Code [and that] any other rule would
eviscerate any limitation that the good faith requirement places
on Chapter 11 filings.” Id.
The second purported benefit was the centralization of
claims and the consolidation of litigations into a single forum.
According to the Bankruptcy Court, the Debtors’ petitions
served a valid bankruptcy purpose by “facilitat[ing] an orderly

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The Sinz and Troia plaintiffs both filed proofs of9
claims for $5 million, In re 15375 Mem’l Corp. I, 382 B.R. at
670-71, and the Tebow Plaintiffs are seeking $320 million in
damages, id. at 664.
The other proofs of claim consist of: (1) six tax claims10
by the state of Texas which the Debtors assert are not their
obligations; (2) three claims, totaling $60,163.03, for services
rendered in connection with defending Santa Fe in the Tebow
Action; and (3) six claims by the GSF Entities for approximately
$455,000 and the right to indemnity should they be held liable
for the Debtors’ liabilities under an alter ego theory. In re
15375 Mem’l Corp. I, 382 B.R. at 670.
35
liquidation of claims and assets of [the Debtors’ estates] in a
central forum.” In re 15375 Mem’l Corp. I, 382 B.R. at 683
(citation omitted). It is true that, at its most basic level,
bankruptcy is designed to handle the distribution problems
arising when the system of individual creditor remedies harms
the creditors as a group and there are not enough assets to go
around. In re Integrated Telecom Express, Inc., 384 F.3d at 121
(citing Thomas H. Jackson, The Logic and Limits of Bankruptcy
Law 10 (1986)). That distribution problem is not implicated in
this case. The majority of the Debtors’ potential liabilities lay
in the Sinz, Troia, and Tebow Actions. The Debtors face up to
approximately $330 million in liabilities from those cases, with
the Tebow Action accounting for the bulk of the potential
liability, $320 million. The other proofs of claim amount to just9
over $500,000 and indemnity rights. The Debtors basically10

-- 35 of 49 --

We exclude the Dore Action because the Debtors were11
not named as defendants and the Ellison Action because it was
dismissed for reasons unrelated to the Debtors’ bankruptcy
filings. In re 15375 Mem’l Corp. I, 382 B.R. at 669.
36
have no cash and approximately $85,000 in claims for cash from
entities besides the GSF Entities. In re 15375 Mem’l Corp. I,
382 B.R. at 676. Obviously these limited assets cannot cover
the substantial liabilities the Debtors face. The Debtors do,
however, have insurance policies that cover the Tebow Action,
id. at 672, and other insurance policies that may cover the Sinz
and Troia Actions, id. at 690. It is “undisputed that if coverage
exists for the claims of the Sinz and Troia plaintiffs . . . , it will
arise under insurance policies separate and distinct from those
[that] provide coverage for BEPCO’s claims.” Id. These
insurance policies, therefore, are the Debtors’ most valuable
assets since they, at a minimum, cover the Tebow Action, the
Debtors’ most significant potential liability. As such, a central
forum for distribution adds little value to the Debtors’ estates
because the Debtors’ insurance policies cannot be used to pay
for liabilities that the policies do not cover. In sum, given that
three of the four active litigations against the Debtors, the Sinz,11
Troia, and Tebow Actions, are likely covered by non-
overlapping insurance policies, id., and that those litigations
dwarf the other proofs of claim in size, id. at 670-72,
centralization of claims in a single forum does not implicate the
basic distribution problem bankruptcy was designed to resolve.

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37
Furthermore, looking at all the proofs of claim filed at the
time of the Bankruptcy Court’s decision on February 15, 2008,
it appears that the vast majority of them, minus the six tax
claims filed by the state of Texas that the Debtors claim are not
their obligations, are somehow related to the Sinz, Troia, and
Tebow Actions, id., and may be covered by insurance, further
mitigating the need for bankruptcy. Two proofs of claim were
filed in connection with the Sinz and Troia Actions, and the
balance of the proofs of claim appear to relate to the Tebow
Action: three were filed by attorneys and expert witnesses for
services provided in connection with Santa Fe’s defense in the
Tebow Action; six were filed by the GSF Entities for funds
provided to file for bankruptcy, id. at 671, which was primarily
motivated by the Tebow Action, id. at 678, and indemnity rights
for, among other things, protection from alter ego claims in the
Tebow Action, id. at 671; and two were filed by BEPCO in
connection with the Tebow Action, id. at 670.
In addition, the insurance policies are and have always
been available outside of bankruptcy without detrimentally
impacting any creditor’s recovery. Thus, like the petitioner in
In re Integrated Telecom Express, Inc., the Debtors cannot
identify “assets that [were] threatened outside of bankruptcy . .
. but that could be preserved or maximized in an orderly
liquidation under Chapter 11.” In re Integrated Telecom
Express, Inc., 384 F.3d at 122. Moreover, an orderly
distribution of assets, standing alone, is not a valid bankruptcy
purpose. Id. at 126. “Antecedent to any such distribution is an

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38
inquiry [into] whether the petition [was] filed in good faith, i.e.,
whether [it] serve[d] a valid bankruptcy purpose.” Id. In other
words, the creation of a central forum to adjudicate claims
against the Debtors is not enough to satisfy the good faith
inquiry—the Debtors must show that bankruptcy has some
“hope of maximizing the value of the [Debtors’ estates].” Id.
Finally, consolidation of litigation was not achieved in this case.
The Bankruptcy Court has already permitted piecemeal litigation
of BEPCO’s claims against Santa Fe and its insurers in
Louisiana state court. Santa Fe Minerals, Inc. v. BEPCO, L.P.
(In re 15375 Mem’l Corp. II), 386 B.R. 548, 554 (Bankr. D. Del.
2008).
The third and fourth purported benefits identified by the
Bankruptcy Court, that filing for bankruptcy “established a bar
date to set the number of claims[,] fixed the notice problem that
existed with respect to Santa Fe’s dissolution[,]” and “created a
known universe of claims,” In re 15375 Mem’l Corp. I, 382 B.R
at 685, were tied to Santa Fe’s botched dissolution under
Wyoming law. “Dissolution . . . is not an objective that can be
attained in bankruptcy.” In re Integrated Telecom Express, Inc.,
384 F.3d at 126 (citation omitted). Moreover, neither the
Bankruptcy Court nor the Debtors explained how the
establishment of a bar date maximized the Debtors’ estates. At
the time of filing their bankruptcy petitions the Debtors knew of
only six litigations in which they could conceivably have been
held liable for damages, and only a handful of creditors have
filed proofs of claim in the Debtors’ bankruptcy proceedings.

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39
Without some risk of significant liability from a substantial
number of litigations or claimants in bankruptcy, it is difficult
for this Court to assign much value to the mere fact that a bar
date was established and a known universe of claims was
created. Also, we reiterate that the “desire to take advantage of
the protections of the Code cannot establish . . . good faith,” id.
at 128, so the establishment of a bar date for claims under the
Bankruptcy Code to remedy Santa Fe’s failure to publish notice
of its dissolution under Wyoming law, which, if done properly,
would have established a bar date back in 2003, does not
evidence good faith.
Next, the Bankruptcy Court claimed that bankruptcy
enabled the Debtors to analyze BEPCO’s claims and “file a
motion contesting whether BEPCO has any legally cognizable
claim . . . against [them.]” In re 15375 Mem’l Corp. I, 382 B.R.
at 685. The mere fact that the Bankruptcy Court provided a
forum to adjudicate the dispute between BEPCO and the
Debtors is not a benefit of bankruptcy—the same adjudication
could have occurred, and in fact, is currently occurring, in
Louisiana state court. On February 15, 2008, the Bankruptcy
Court granted BEPCO relief from the automatic stay so that it
could pursue its claims against Santa Fe and Sante Fe’s insurers
in Louisiana state court. Id. at 686-92. The Bankruptcy Court
permitted that claim to proceed because, among other things, the
Louisiana state court action allowed BEPCO to vigorously
“pursue all of its rights” to insurance proceeds instead of having
to wait for Santa Fe to assert those rights. Id. at 692; see In re

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40
15375 Mem’l Corp. II, 386 B.R. at 554 (noting that Louisiana
was the proper forum for the claims because “[t]he claims
involve[d] state law issues addressing liability for contamination
of groundwater and soil in Louisiana”). In effect, the
Bankruptcy Court did nothing more than permit BEPCO’s
Louisiana state action, which was stalled by the Debtors’
bankruptcy filings and the subsequent automatic stay, to go
forward. This is not a benefit of bankruptcy, and it did not
maximize the value of the Debtors’ estates.
Three other purported benefits pertained to the insurance
policy review. The Debtors purportedly availed themselves “of
the breathing spell afforded by bankruptcy to inventory and
analyze potentially applicable insurance policies and related
information,” discovered insurance policies that appear to cover
the Tebow, Sinz, and Troia Actions, and “commenced and
continued substantive communications with insurers[.]” In re
15375 Mem’l Corp. I, 382 B.R. at 685. First, the review was
conducted by GSFCSI, a company that needed no breathing
spell because it was not under financial distress and faced no
litigation threats. In addition, the review was undertaken for the
benefit of all GSF Entities, not just the Debtors. Id. at 673. The
pending litigations probably would have necessitated the
insurance policy review regardless of the Debtors’ bankruptcies
since the overall goal of the review was to locate and categorize
all policies and to determine whether the policies protected the
Debtors or the GSF Entities. See id. Second, there was
absolutely no causal connection between the bankruptcy filings

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The Debtors’ claim that conducting the insurance12
review in-house was less expensive than hiring an outside
consultant, thereby benefitting their creditors, fails for the same
reason—there was no causal connection between the bankruptcy
and the insurance policy review.
41
and the insurance policy review. The insurance policy review
was neither required by bankruptcy nor impeded outside of
bankruptcy, and GSFCSI was free to conduct the review at any
time. Third, the value of the insurance policies was not affected
by the bankruptcy. Thus, the fact that GSFCSI happened to
conduct the review after the Debtors filed for bankruptcy is
irrelevant.12
Next, the Bankruptcy Court reasoned that bankruptcy
permitted the Debtors to negotiate a settlement of issues with the
GSF Entities in which the GSF Entities would cooperate in
pursuit of insurance rights and would contribute over
$1,000,000 so that substantial value could be delivered to the
Debtors’ creditors. Id. at 685. First, considering that GSFCSI
conducted the insurance review for the benefit of all the GSF
Entities, not just the Debtors, id. at 673, it is difficult to consider
cooperation in pursuit of insurance rights as a benefit of
bankruptcy. The GSF Entities acted out of self interest. They
knew of the risks they faced from alter ego claims and realized
that the Debtors’ insurance policies could aid them in protecting
themselves, so they had an incentive to cooperate on insurance
rights wholly independent of bankruptcy. Assuming,

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42
hypothetically, that the Debtors never filed for bankruptcy, the
GSF Entities would still have had an incentive to cooperate on
insurance rights because of the risk of alter ego liability in
Louisiana state court. Second, the Bankruptcy Court, in
granting BEPCO relief from the automatic stay to bring claims
against Santa Fe and Santa Fe’s insurers in Louisiana state court,
conceded that the Debtors did not have “the necessary incentive
to pursue [their] insurers[.]” Id. at 692. In conceding that point,
it negated the purported benefit gained by cooperation between
the GSF Entities and the Debtors on insurance rights. If the
Debtors lacked the incentive to pursue their insurers, the
cooperation of the GSF Entities in that inaction hardly seems
beneficial to the Debtors’ estates or the creditors seeking
insurance proceeds. Third, the $1,000,000 slated to be
contributed by the GSF Entities is not much of a concession in
light of their systematic use of the Debtors to protect themselves
from litigation liabilities that far exceed their contribution.
Moreover, Faure, the decision-maker for the Debtors’
bankruptcies, lacked an incentive to vigorously negotiate on
behalf of the Debtors against the GSF entities because doing so
“would jeopardize his job.” See id. at 661 (noting that Faure
“testified that filing a lawsuit against [GSF] on behalf of the
Debtors to facilitate the return of upstreamed funds would
jeopardize his job”).
The next purported benefit, the formulation of a
liquidation plan, did not maximize the Debtors’ estates. The
Debtors must show that the liquidation plan served a valid

-- 42 of 49 --

See In re Little Creek Dev. Co., 779 F.2d at 107313
(noting that filings that lack good faith “generally [involve
companies that have] no employees . . . , little or no cash flow,
and no available sources of income to sustain a plan of
reorganization”); In re C-TC 9th Ave. P’ship, 113 F.3d at 1311
(same).
43
bankruptcy purpose—the mere creation of a liquidation plan,
standing alone, is not enough. In re Integrated Telecom, 384
F.3d at 126. The last purported benefit, that bankruptcy enabled
the Debtors to “continue to manage and search for assets[,]” In
re 15375 Mem’l Corp. I, 382 B.R. at 685, is unimportant
because the Debtors have not conducted any business outside of
litigation for several years and have no offices, operations, or
employees, id. at 660-62. In addition, the Debtors could have13
managed and searched for assets without filing for bankruptcy.
In fact, filing for bankruptcy has only increased the Debtors’
cash shortfall. At the time of filing for bankruptcy, “[t]he
Debtors’ financial condition when viewed on a cash basis [wa]s
poor.” Id. at 679. Their condition has only deteriorated as
substantial bankruptcy-related administrative expenses,
including legal fees and fees owed to GSFCSI for support
services, have accrued. Id. at 679-80. In short, the Debtors
could have managed and searched for assets without filing for
bankruptcy and without incurring bankruptcy-related
administrative expenses.
Having considered each of the purported benefits

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While this appeal does not involve a breach of14
fiduciary duty claim against the debtor in possession, In re
Insilco Tech., Inc., 480 F.3d 212, 215 n.3 (3d Cir. 2007) (noting
that debtor in possession is “bound by all of the fiduciary duties
of a bankruptcy trustee”), similar concerns are relevant to the
good faith inquiry.
44
identified by the Bankruptcy Court as justifying the Chapter 11
filings, we turn to an issue that the Bankruptcy Court failed to
consider in its good faith analysis: the Debtors’ representative
was primarily concerned with protecting the GSF Entities, not
the Debtors. Faure, the principal decision-maker guiding the14
Debtors’ bankruptcies, was inextricably entangled in numerous
aspects of the GSF Entities’ operations. Aside from handling
the Debtors’ bankruptcies, Faure was also employed by GSFCSI
as vice president, assistant general counsel, and assistant
secretary, and acted as vice president and assistant secretary of
EHI. Id. at 661 Faure’s mixed allegiances prevented him from
adequately protecting the Debtors’ interests. For example,
Faure’s negotiations with EHI, a company for which he was the
vice president and assistant secretary, on the terms of the
demand note amounted to a litany of concessions by Memorial
that insulated the GSF Entities from any liability. Id. at 668-69.
Memorial stood to gain nothing from the demand note except
the ability to pay the costs of filing for bankruptcy—and the
bankruptcy itself, as explained in the next section, was a
litigation tactic to protect the GSF Entities. Also, the Debtors’
decision to file for bankruptcy was not their own; GSF was

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45
ultimately in control of whether the Debtors filed. Leading up
to the filings, Faure reported to McCullough, GSF’s senior vice
president and general counsel, on legal matters relating to
Memorial and he had to receive approval from McCullough to
file the Debtors’ bankruptcy petitions. Id. at 661. Finally, Faure
testified at trial that “filing a lawsuit against [GSF] on behalf of
the Debtors . . . would jeopardize his job.” Id. Even if Faure
had wanted to act in the Debtors’ interests, he did not consider
himself free to do so because it would have placed his job at
risk.
In sum, the Debtors’ filing for bankruptcy did not
maximize the value of their estates. Indeed, it would be
exceedingly difficult to do so where neither Santa Fe nor
Memorial had any real assets to preserve besides various
insurance policies. The purported benefits to the Debtors’
estates identified by the Bankruptcy Court either had no causal
connection to filing for bankruptcy, i.e., they were events that
could have occurred outside of bankruptcy, or were based on
procedural benefits gained from bankruptcy that cannot be said
to have maximized the value of the Debtors’ estates. As such,
we conclude that the Debtors’ petitions failed to serve a valid
bankruptcy purpose.
B.
In addition to failing to serve a valid bankruptcy purpose,
the timing of the Debtors’ bankruptcy petitions shows that they

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See In re C-TC 9th Ave. P’ship, 113 F.3d at 131115
(noting that where “the timing of the debtor’s filing evidences
an intent to delay or frustrate the legitimate efforts of the
debtor’s secured creditors to enforce their rights,” this can
bolster a conclusion of lack of good faith”); In re Phoenix
Piccadilly, Ltd., 849 F.2d at 1394-95 (same); see also In re Little
Creek Dev. Co., 779 F.2d at 1073 (explaining that happenings
in state court litigation are relevant to the good faith analysis).
46
were filed primarily as a litigation tactic to avoid liability in the
Tebow Action. “[F]iling a Chapter 11 petition merely to obtain
tactical litigation advantages is not within the legitimate scope
of the bankruptcy laws[.]” In re SGL Carbon Corp., 200 F.3d
at 165 (internal quotation omitted); accord In re Integrated
Telecom Express, Inc., 384 F.3d at 120. Where “the timing of
the filing of a Chapter 11 petition is such that there can be no
doubt that the primary, if not sole, purpose of the filing was a
litigation tactic, the petition may be dismissed as not being filed
in good faith.” In re SGL Carbon Corp., 200 F.3d at 165
(quoting In re HBA East, Inc., 87 B.R. at 259-60).15
In this case, the Bankruptcy Court found that the “Tebow
Action was the principal factor” in the Debtors’ filing for
bankruptcy. In re 15375 Mem’l Corp. I, 382 B.R. at 678
(emphasis added). Debtors filed their petitions on August 16,
2006, roughly two months before trial in the Tebow Action and
shortly after BEPCO and the Tebow Plaintiffs informed Santa
Fe that they would pursue the GSF Entities under an alter ego

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47
theory. Id. at 667. At that time, discovery in the Tebow Action
was already complete and expert reports showed that Santa Fe’s
contamination of the East Pit area of the Tebow Property was a
significant part of the overall contamination of the property. Id.
at 664. The Debtors were worried that their dissolution defense
would fail, id. at 667, exposing them to at least $189 million in
damages, id. at 664, and filed their bankruptcy petitions with the
knowledge that doing so would result in their dismissal from the
Tebow Action and would shield the GSF Entities from
litigation, id. at 665. Given this mix of facts and the Debtors’
sudden decision to file for bankruptcy despite their having been
dormant and without employees or offices for several years, we
cannot escape the conclusion that the filings were a litigation
tactic.
Considering the results of the Debtors’ bankruptcy
filings, the tactical advantages gained by the Debtors and the
GSF Entities against BEPCO are obvious. The Debtors’
bankruptcy filings protected the GSF Entities from liability for
the damage to the Tebow Property. Indeed, the Debtors
continue to argue that any alter ego claims against the GSF
Entities are part of their estates and cannot be asserted by
BEPCO, while simultaneously, and incongruously, stating that
they believe that any such claims would have no value. See id.
at 677. If the Debtors and the GSF Entities had their way,
BEPCO would be left without any opportunity to litigate its alter
ego claims against the GSF Entities and, conveniently for the
GSF Entities, the Debtors would not bring the claims because

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48
they do not believe the claims have value. Even if the
Bankruptcy Court later permits BEPCO to bring its alter ego
claims against the GSF Entities in Louisiana state court, BEPCO
will have already been prejudiced “to the extent of the lost time
value of money for the settlement funds it has already paid out
to resolve its liability in the Tebow Action.” Id. at 690. “More
critically, BEPCO [will be] prejudiced by the lapse of time in
terms of its ability to effectively prosecute its claims” because
“[w]itnesses and documents may become unavailable.” Id.
Taking into account the lack of a valid bankruptcy
purpose, the timing of the filings of the petitions, and the tactical
advantages gained from the bankruptcy filings by the Debtors
and the GSF Entities, we agree with the District Court’s
conclusion that the Debtors filed their petitions primarily as a
litigation tactic to frustrate BEPCO’s claims against the Debtors
and the GSF Entities.
IV.
The Debtors have failed to show that their Chapter 11
bankruptcy petitions served valid bankruptcy purposes because
the bankruptcies did not maximize the Debtors’ estates.
Moreover, the timing of the Debtors’ filings, two months prior
to a trial in which they and the GSF Entities faced substantial
liability, show that the bankruptcy petitions were filed primarily
as a litigation tactic. Accordingly, we will affirm the District
Court’s order to dismiss the Debtors’ bankruptcy petitions for

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lack of good faith.

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