IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION )
In re: ) Chapter 11
)
GULFPORT ENERGY CORPORATION, et al.,1 ) Case No. 20-35562 (DRJ) )
Debtors. ) (Jointly Administered) )
)
DEBTORS’ SEVENTH OMNIBUS OBJECTION TO CERTAIN PROOFS OF CLAIM (NO LIABILITY CLAIMS)
This is an objection to your claim(s). The objecting party is asking the Court to disallow the claim(s) that you filed in this bankruptcy case. You should immediately contact the objecting party to resolve the dispute. If you do not reach an agreement, you must file a response to this objection and send a copy of your response to the objecting party by 4:00 p.m., prevailing Central Time, on the day that is 30 days after the objection was served on you. Your response must state why the objection is not valid. If you do not file a response within 30 days after the objection was served on you, your claim(s) may be disallowed without a hearing.
Represented parties should act through their attorney.
A hearing will be conducted on this matter on April 6, 2021 at 1:30 p.m., prevailing Central Time, in Courtroom 400, 4th floor, 515 Rusk Street, Houston, Texas 77002. You may participate in the hearing by audio/video connection.
Audio communication will be by use of the Court’s dial-in facility. You may access the facility at (832) 917-1510. You will be responsible for your own long distance charges. Once connected, you will be asked to enter the conference room number. Judge Jones’s conference room number is 205691.
You may view video via GoToMeeting. To use GoToMeeting, the Court recommends that you download the free GoToMeeting application. To connect, you should enter the meeting code
“JudgeJones” in the GoToMeeting app or click the link on Judge Jones’s home page on the Southern District of Texas website. Once connected, click the settings icon in the upper right corner and enter your name under the personal information setting.
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: Gulfport Energy Corporation (1290); Gator Marine, Inc. (1710); Gator Marine Ivanhoe, Inc. (4897);
Grizzly Holdings, Inc. (9108); Gulfport Appalachia, LLC (N/A); Gulfport MidCon, LLC (N/A); Gulfport Midstream Holdings, LLC (N/A); Jaguar Resources LLC (N/A); Mule Sky LLC (6808); Puma Resources, Inc.
(6507); and Westhawk Minerals LLC (N/A). The location of the Debtors’ service address is: 3001 Quail Springs Parkway, Oklahoma City, Oklahoma 73134.
Hearing appearances must be made electronically in advance of the hearing. To make your electronic appearance, go to the Southern District of Texas website and select “Bankruptcy Court” from the top menu. Select “Judges’ Procedures,” then “View Home Page” for Judge Jones. Under “Electronic Appearance” select “Click here to submit Electronic Appearance.”
Select the case name, complete the required fields, and click “Submit” to complete your appearance.
The above-captioned debtors and debtors in possession (collectively, the “Debtors”)2 represent as follows in support of this omnibus claims objection (this “Objection”) to certain No Liability Claims (as defined herein).
Relief Requested
1. By this Objection, the Debtors seek entry of an order, substantially in the form attached hereto (the “Order”), disallowing each proof of claim identified on Schedule 1 to the Order (collectively, the “No Liability Claims,” and the related claimants, the “Claimants”) for the reasons asserted herein.3
Jurisdiction and Venue
2. The United States Bankruptcy Court for the Southern District of Texas (the “Court”) has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b). The Debtors confirm their consent to the entry of a final order by the Court.
3. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
2 A detailed description of the Debtors and their businesses, and the facts and circumstances supporting the Debtors’
chapter 11 cases, are set forth in greater detail in the Declaration of Quentin R. Hicks, Executive Vice President and Chief Financial Officer of Gulfport Energy Corporation, in Support of Chapter 11 Petitions and First Day Motions [Docket No. 40], filed contemporaneously with the Debtors’ voluntary petitions for relief filed under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), on November 13, 2020 (the “Petition Date”). Capitalized terms used but otherwise not defined herein shall have the meanings ascribed to such terms in the Joint Chapter 11 Plan of Reorganization of Gulfport Energy Corporation and Its Debtor Subsidiaries [Docket No. 816] or the Objection Procedures Order (as defined herein), as applicable.
3 The Debtors will present evidence in support of the Objection at the Hearing.
4. The bases for the relief requested herein are sections 105(a) and 502(b) of the Bankruptcy Code, rule 3007 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), rule 3007-1 of the Bankruptcy Local Rules for the Southern District of Texas (the “Bankruptcy Local Rules”), the Order Approving Claims Objection Procedures and the Form of Notice [Docket No. 830] (the “Objection Procedures Order”), and the Order Granting Limited Relief from the Objection Procedures Order [Docket No. 858] (the “Revised Procedures Order”).
The Claims Reconciliation Process
5. On December 14, 2020, the Debtors filed their statements of financial affairs and schedules of assets and liabilities [Docket Nos. 420–430] (the “SOFAs and Schedules”), pursuant to Bankruptcy Rule 1007.
6. On December 11, 2020, the Court entered the Order (I) Setting Bar Dates for Filing Proofs of Claim, Including Requests for Payment Under Section 503(b)(9), (II) Establishing Amended Schedules Bar Date and Rejection Damages Bar Date, (III) Approving the Form of and Manner for Filing Proofs of Claim, Including Section 503(b)(9) Requests, (IV) Approving Notice of Bar Dates, and (V) Granting Related Relief [Docket No. 388] (the “Bar Date Order”), establishing certain dates and deadlines for filing proofs of claim in these chapter 11 cases. The Bar Date Order established, among other things, January 26, 2021, at 5:00 p.m. prevailing Central Time, as the deadline for all non-governmental entities holding or wishing to assert a “claim” (as defined in section 101(5) of the Bankruptcy Code) against any of the Debtors that arose before the Petition Date to file proof of such claim in writing, and May 12, 2021, at 5:00 p.m. prevailing Central Time, as the deadline for all governmental entities holding or wishing to assert a “claim” (as defined in section 101(5) of the Bankruptcy Code) against any of the Debtors that arose before the Petition Date to file proof of such claim in writing.
7. As of the filing of this Objection, approximately 2,200 proofs of claim have been filed against the Debtors, totaling approximately $12.5 billion in the aggregate.4 The Debtors sought and were granted approval to file omnibus objections to certain claims in accordance with the procedures set forth in the Objection Procedures Order.
8. On March 2, 2021, the Debtors filed the Debtors’ Emergency Motion for Entry of an Order Granting Limited Relief from the Objection Procedures Order [Docket No. 857]
(the “Revised Procedures Motion”), seeking limited relief from the Objection Procedures to promptly resolve objections to the Objectionable Claims (as defined therein) on an expedited basis because of the unique circumstances presented by these chapter 11 cases and the mechanics of the carefully-negotiated Joint Chapter 11 Plan of Reorganization of Gulfport Energy Corporation and Its Debtor Subsidiaries [Docket No. 816] (the “Plan”). The circumstances prompting the filing of the Revised Procedures Motion are more fully set forth therein.
9. On March 2, 2021, the Court entered the Revised Procedures Order, as modified, granting the Revised Procedures Motion.
10. The Debtors and their advisors (collectively, the “Reviewing Parties”) have diligently reviewed the claims register, the relevant proofs of claim, the Debtors’ books and records, and the supporting documentation provided by each Claimant, if any. For the reasons set forth below, and based on their review to date, the Reviewing Parties have determined that the No Liability Claims should be disallowed as set forth herein.
The No Liability Claims
11. The Claimants assert claims in an aggregate amount of approximately
$623.8 million. Each Claimant has purported claims relating to: (a) the lawsuit captioned J&R
4 The Debtors also anticipate additional claims will be filed in the form of rejection damages claims.
Passmore, LLC, et al., v. Rice Drilling D, LLC, et al., Case No. 2:18-cv-1587, pending in the Southern District of Ohio, Eastern Division; (b) the lawsuit captioned TERA, LLC, v. Rice Drilling D, LLC, et al., Case No. 17-cv-344, pending in the Court of Common Pleas, Belmont County, Ohio; or (c) the lawsuit captioned TERA II, LLC, et al., v. Rice Drilling D, LLC, et al., Case No. 2:19-cv-2221, pending in the Southern District of Ohio, Eastern Division (the “Ohio Litigation”).
12. Each of these lawsuits assert claims against other defendants in addition to the Debtors, including Rice Drilling D, LLC, EQT Corporation, XTO Energy Inc., Ascent Resources- Utica, LLC, Antero Resources Corporation, and Hess Ohio Developments, LLC.
13. The Claimants assert claims related to, among other things, royalty disputes and alleged unlawful trespass, conversion, and unjust enrichment claims. As detailed herein, the No Liability Claims are meritless, and even if the Debtors had liability on such claims (which they do not) the asserted damages amounts are grossly inflated.
Objection
14. Section 502(a) of the Bankruptcy Code provides, in pertinent part, as follows:
“[a] claim or interest, proof of which is filed under section 501 of [the Bankruptcy Code], is deemed allowed, unless a party in interest . . . objects.” 11 U.S.C. § 502(a). Further, section 502(b)(1) of the Bankruptcy Code provides that a court “shall determine the amount of such claim . . . as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that—such claim is unenforceable against the debtor and the property of the debtor . . . .” 11 U.S.C. § 502(b)(1). Moreover, the Objection Procedures provide certain Additional Grounds upon which the Debtors may file an Omnibus Objection, including instances where claims, in part or in whole “are inconsistent with the Debtors’ books and records and for
which the Debtors are not liable” or “seek recovery of amounts for which the Debtors are not liable.” See Objection Procedures at ¶ 1(a), (d).
15. As set forth in Bankruptcy Rule 3001(f), a properly executed and filed proof of claim constitutes prima facie evidence of the validity and the amount of the claim under section 502(a) of the Bankruptcy Code. See, e.g., In re Jack Kline Co., Inc., 440 B.R. 712, 742 (Bankr. S.D. Tex. 2010). However, a proof of claim loses the presumption of prima facie validity under Bankruptcy Rule 3001(f) if an objecting party refutes at least one of the allegations that is essential to the claim’s legal sufficiency. See In re Fidelity Holding Co., Ltd., 837 F.2d 696, 698 (5th Cir. 1988). Once such an allegation is refuted, the burden reverts to the claimant to prove the validity of its claim by a preponderance of the evidence. See id. Despite this shifting burden during the claim objection process, “the ultimate burden of proof always lies with the claimant.”
In re Armstrong, 347 B.R. 581, 583 (Bankr. N.D. Tex. 2006) (citing Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15 (2000)).
I. The Debtors Have No Liability with Respect to the No Liability Claims.
16. The Reviewing Parties have thoroughly reviewed the Debtors’ books and records along with the No Liability Claims, and any documents filed in support therewith, and have determined that the Debtors’ books and records reflect no outstanding liability on the grounds asserted in the No Liability Claims, and, therefore, the Debtors do not believe they owe the amounts asserted therein. Further, the proofs of claim contain no supporting documentation demonstrating a valid liability of the Debtors, and, as a result, the Debtors are unable to determine the validity, if any, of the No Liability Claims. Thus, the No Liability Claims do not represent obligations properly owed by the Debtors, and the Debtors do not believe they are liable for the No Liability Claims. Failure to disallow the No Liability Claims could result in an improper recovery to the Claimants, and disallowance of the No Liability Claims will enable the Debtors to
maintain an accurate claims register in these chapter 11 cases. Accordingly the Debtors seek entry of the Order disallowing the No Liability Claims in their entirety.
17. In addition to the procedural deficiencies identified above, the No Liability Claims are also highly unlikely to succeed on the merits. The Claimants point to a single state trial court partial summary judgment decision granted in favor of one plaintiff, TERA LLC as the basis for claims involving hundreds of lessors. Gulfport believes that this ruling, which is not a final judgment, was wrongly decided as to TERA LLC’s claims, and it cannot support hundreds of other unique claims. The Claimants point to no evidence beyond this decision and fail to address the significant evidence demonstrating that the Debtors have no liability for these claims.
18. To begin, the No Liability Claims are based on a breach of contract theory that defies the plain language of the Claimants’ leases and applicable Ohio law. The leases at issue refer to rights in the “Utica Shale” and the crux of the dispute is whether reference to the “Utica Shale” was intended to encompass rights in the Point Pleasant formation. In the Ohio Litigation, the Claimants have asserted that their leases with the defendants did not cover rights in the Point Pleasant formation, and therefore the defendants had no right to produce and sell gas from this area. As described below, this position is contrary to general public usage, the opinion of the Claimants’ own expert, and the documented views of the individual who actually negotiated the lease form (a “Smith-Goshen Lease”) at issue.
19. There is no doubt that at the time of the relevant lease negotiations, the general public used the term “Utica Shale” to encompass activity in both the Utica and Point Pleasant formations. For example, multiple local news articles contemporaneous to the relevant lease negotiations used the term “Utica Shale” to refer to operations in both Utica and Point Pleasant formations. See 7/1/2020 Defendants’ Motion for Partial Summary Judgment at 11 (TERA I).
20. Furthermore, Claimants’ own expert in TERA I, Dr. Jeffrey Dick, ultimately agreed with defendants that the oil and gas industry and general public used the term “Utica Shale” to refer to both the Utica and Point Pleasant formations. In fact, Dr. Dick testified that in previous reports and lectures, he has used the term “Utica Shale” to refer to both formations. See Dick Dep.
Tr. at 91:22-92:2.
21. Finally, the Claimants’ interpretation of the relevant lease language is directly undermined by the individual who actually negotiated the Smith-Goshen Lease form at issue.
In January 2014, Larry Cain, the leader of the Smith-Goshen Group, signed a declaration (the “Cain Declaration”) concerning his “intentions” in negotiating the Smith-Goshen Lease language at issue. The Cain Declaration is squarely at odds with the Claimants’ flawed interpretation:
22. Claimants’ theory of liability has no evidentiary support and they have failed to satisfy their burden pursuant to Bankruptcy Rule 3007-1. Accordingly, the Debtors seek entry of the Order disallowing the No Liability Claims in their entirety.
II. Even Assuming Liability, the No Liability Claims are Unliquidated, Severely Overstated, and Not Properly Allocated.
23. In the event the No Liability Claims are not disallowed in their entirety, each of the No Liability Claims set forth on Schedule 1 attached to the Order should be revised to remove the Claimants’ asserted claim amounts.
24. The Claimants have erroneously identified the “nature” of their claims as
“Litigation claims.” None of the Claimants have obtained judgments on any of their underlying claims, and thus, their claims are at best unliquidated. Not only are the No Liability Claims unliquidated, they are also entirely speculative. The Claimants did not include any damages analyses or backup calculations in their proofs of claim, despite their burden to do so. The Debtors have requested this evidence, but to date, counsel to the Claimants has provided no support.
25. Further, the Claimants’ unsupported claim amounts are grossly overstated. While the Debtors’ review of the No Liability Claims is ongoing, based on their review to date, the Claimants’ asserted amounts are at least five times higher than the total revenue that the Debtors have received from these leases. And that is without reaching the various issues that would need to be reached as part of liquidating these claims that could significantly reduce the size of these claims even further, including evaluating the applicable leases to determine whether they contain the depth restriction language at issue in the litigation (only 81% do, but the Claimants have calculated their damages as if 100% do) and examining the geographic source of the revenue used in calculating damages (presently, the Claimants are claiming damages on account of all revenue for all geological formations, not just the revenues associated with their purported claims).
26. Additionally, the Reviewing Parties have thoroughly reviewed the Debtors’ books and records, the claims register, and the relevant proofs of claim, and determined that the No Liability Claims do not allocate their asserted damages amounts to the proper Debtor entities.
Specifically, to the extent the Debtors have liability on such claims, the damages amounts asserted in the No Liability Claims should be reallocated, with 90% of amounts attributable to Gulfport Parent and 10% to Gulfport Appalachia, LLC. This allocation reflects the Reviewing Parties’
current best estimate of historical revenue allocation to each applicable Debtor entity.
27. In light of the foregoing, the Debtors request that the Court disallow the No Liability Claims entirely. To the extent that this relief is not granted, the Debtors request that the Claimants’ asserted claim amounts be removed until the Claimants establish a defendable value for their disputed claims.
Compliance with the Objection Procedures and the Bankruptcy Rules
28. The contents of this Objection are in full compliance with the Bankruptcy Rules and the Objection Procedures (as adjusted by the Revised Procedures Order).
29. Notice and service of this Objection will be in full compliance with the Objection Procedures, the Revised Procedures Order, and the Bankruptcy Rules for the following reasons:
(a) this Objection will be filed with the Court and served electronically using the Court’s electronic filing system;
(b) with respect to service on the Claimants affected by this Objection, the Debtors will also serve each such Claimant with a customized objection notice tailored, as appropriate, to address the particular creditor, claim, and objection;and
(c) this Objection will be set for hearing at least 30 days after the filing of this Objection.
Reservation of Rights
30. This Objection is limited to the grounds stated herein. Accordingly, it is without prejudice to the rights of the Debtors or any other party in interest to object to the No Liability Claims on any grounds whatsoever. The Debtors expressly reserve all further substantive or procedural objections they may have to the No Liability Claims. Nothing contained herein or any
actions taken pursuant to such relief is intended or should be construed as: (a) an admission as to the validity of any prepetition claim against a Debtor entity; (b) a waiver of any party’s right to dispute any prepetition claim on any grounds; (c) a promise or requirement to pay any prepetition claim; (d) an implication or admission that any particular claim is of a type specified or defined in this Objection or any order granting the relief requested by this Objection; (e) a request or authorization to assume any prepetition agreement, contract, or lease pursuant to section 365 of the Bankruptcy Code; or (f) a waiver of the Debtors’ rights under the Bankruptcy Code or any other applicable law.
Notice
31. Notice of the hearing on the relief requested in this Objection will be provided by the Debtors in accordance and compliance with Bankruptcy Rule 3007, as well as the Bankruptcy Local Rules, and is sufficient under the circumstances. Without limiting the foregoing, due notice will be afforded, whether by facsimile, electronic mail, overnight courier, or hand delivery, to parties in interest, including: (a) the U.S. Trustee; (b) the holders of the 30 largest unsecured claims against the Debtors (on a consolidated basis); (c) counsel to the Committee; (d) counsel to the Ad Hoc Group; (e) counsel to the DIP Agent; (f) the United States Attorney’s Office for the Southern District of Texas; (g) the Internal Revenue Service; (h) the United States Securities and Exchange Commission; (i) the Environmental Protection Agency and similar state environmental agencies for states in which the Debtors conduct business; (j) the state attorneys general for states in which the Debtors conduct business; (k) the indenture trustee under the indentures for the Unsecured Notes; (l) the Claimants; and (m) any party that has requested notice pursuant to Bankruptcy Rule 2002. In light of the nature of the relief requested, no other or further notice need be given.
WHEREFORE, the Debtors request that the Court enter the Order, granting the relief requested herein and such other relief as the Court deems appropriate under the circumstances.
Houston, Texas March 5, 2021
Respectfully Submitted, /s/ Veronica A. Polnick
JACKSON WALKER LLP KIRKLAND & ELLIS LLP
Matthew D. Cavenaugh (TX Bar No. 24062656) KIRKLAND & ELLIS INTERNATIONAL LLP Veronica A. Polnick (TX Bar No. 24079148) Edward O. Sassower, P.C.
Cameron A. Secord (TX Bar No. 24093659) Steven N. Serajeddini, P.C. (admitted pro hac vice) 1401 McKinney Street, Suite 1900 601 Lexington Avenue
Houston, Texas 77010 New York, New York 10022
Telephone: (713) 752-4200 Telephone: (212) 446-4600 Facsimile: (713) 752-4221 Facsimile: (212) 446-4800
Email: [email protected] Email: [email protected]
[email protected] [email protected]
-and- Co-Counsel for the Debtors and Debtors in
Possession Christopher S. Koenig (admitted pro hac vice)
300 North LaSalle Street Chicago, Illinois 60654 Telephone: (312) 862-2000 Facsimile: (312) 862-2200
Email: [email protected] Co-Counsel for the Debtors and Debtors in Possession
Certificate of Service
I certify that on March 5, 2021, I caused a copy of the foregoing document to be served by the Electronic Case Filing System for the United States Bankruptcy Court for the Southern District of Texas.
/s/ Veronica A. Polnick Veronica A. Polnick
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
)
In re: ) Chapter 11
) GULFPORT ENERGY CORPORATION, et al.,1 ) Case No. 20-35562 (DRJ)
)
Debtors. ) (Jointly Administered)
) )
DECLARATION OF MARK RAJCEVICH IN SUPPORT OF DEBTORS’ SEVENTH OMNIBUS OBJECTION TO CERTAIN PROOFS OF CLAIM (NO LIABILITY CLAIMS) I, Mark Rajcevich, hereby declare under penalty of perjury:
1. I am a Managing Director at Alvarez & Marsal North America, LLC (“A&M”), restructuring advisors to the above-captioned debtors and debtors in possession, (collectively, the “Debtors”). I, along with my colleagues at A&M, have been engaged by the Debtors to provide various restructuring services. I currently serve as Chief Restructuring Officer of Gulfport Energy Corporation (“Gulfport”), a corporation organized under the laws of Delaware and one of the Debtors.
2. As part of my current position, I am responsible for certain claims management and reconciliation matters. I am generally familiar with the Debtors’ day-to-day operations, financing arrangements, business affairs, and books and records that reflect, among other things, the Debtors’
liabilities and the amount thereof owed to their creditors as of the Petition Date. I have read the
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: Gulfport Energy Corporation (1290); Gator Marine, Inc. (1710); Gator Marine Ivanhoe, Inc. (4897);
Grizzly Holdings, Inc. (9108); Gulfport Appalachia, LLC (N/A); Gulfport MidCon, LLC (N/A); Gulfport Midstream Holdings, LLC (N/A); Jaguar Resources LLC (N/A); Mule Sky LLC (6808); Puma Resources, Inc.
(6507); and Westhawk Minerals LLC (N/A). The location of the Debtors’ service address is: 3001 Quail Springs Parkway, Oklahoma City, Oklahoma 73134.
Debtors’ Seventh Omnibus Objection to Certain Proofs of Claim (No Liability Claims) (the “Objection”).2
3. To the best of my knowledge, information, and belief, the assertions made in the Objection are accurate. In evaluating the No Liability Claims, the Reviewing Parties thoroughly reviewed the claims register, the relevant proofs of claim, the Debtors’ books and records, and the supporting documentation provided by each Claimant, if any, and determined that each Satisfied Claim should be disallowed. To the best of my knowledge, the claims register and the Debtors’
books and records are accurate. Accordingly, I do not believe that the Debtors owe the amounts claimed, and I believe that the disallowance of the No Liability Claims on the terms set forth in the Objection is appropriate.
4. The No Liability Claims are subject to the outcome of pending litigation against the Debtors and are therefore unliquidated claims. The claims are filed as fixed dollar amounts rather than unliquidated. As such, I do not believe that the Debtors are liable for the amounts claimed.
2 Capitalized terms used but not otherwise defined herein shall have the same meaning ascribed to them in the Objection.
Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the facts set forth in the foregoing declaration are true and correct to the best of my knowledge, information and belief as of the date hereof.
/s/ Mark Rajcevich
Dated: March 5, 2021 Mark Rajcevich
Managing Director
Alvarez & Marsal North America, LLC
