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In re Sanchez Energy Corporation
The Fifth Circuit reversed lower courts, holding that a Chapter 11 debtor's post-confirmation settlement and restructuring agreements executed 18 months after plan confirmation were not "executory contracts" under the reorganization plan, stripping the bankruptcy court of "related-to" jurisdiction over a nondebtor midstream provider's state-law claims. The decision clarifies that executory contracts subject to assumption or rejection under 11 U.S.C. § 365 must have existed prepetition, limiting bankruptcy court jurisdiction over disputes involving agreements created after confirmation.
Analysis
Fifth Circuit Vacates Bankruptcy Court's 'Single Satisfaction' Violation in Sanchez Energy Reorganization
The Fifth Circuit vacated a bankruptcy court's equity allocation in the Sanchez Energy reorganization, holding that the court violated 11 U.S.C. § 550(a) by awarding unsecured creditors both the return of avoided liens on oil and gas leases and the value of those liens. The dispute centered on $500 million in secured notes backed by nonpossessory liens on virtually all corporate assets, including the HHK Leases, which were worth more than all other Sanchez assets combined.
Fifth Circuit Limits Post-Confirmation Bankruptcy Jurisdiction Over Midstream Restructuring Disputes
The Fifth Circuit reversed lower courts, holding that a Chapter 11 debtor's post-confirmation settlement and restructuring agreements executed 18 months after plan confirmation were not "executory contracts" under the reorganization plan, stripping the bankruptcy court of "related-to" jurisdiction over a nondebtor midstream provider's state-law claims. The decision clarifies that executory contracts subject to assumption or rejection under 11 U.S.C. § 365 must have existed prepetition, limiting bankruptcy court jurisdiction over disputes involving agreements created after confirmation.