In the Matter of: LINN ENERGY, L.L.C.; BERRY PETROLEUM COMPANY, L.L.C.; LINNCO, L.L.C.; LINN ACQUISITION COMPANY, L.L.C.; LINN ENERGY FINANCE CORPORATION; LINN ENERGY HOLDINGS, L.L.C.; LINN EXPLORATION & PRODUCTION MICHIGAN, L.L.C.; LINN EXPLORATION MIDCONTINENT, L.L.C.; LINN MIDSTREAM, L.L.C.; LINN MIDWEST ENERGY, L.L.C.; LINN OPERATING, INCORPORATED; MID-CONTINENT I, L.L.C.; MID-CONTINENT II, L.L.C.; MID-CONTINENT HOLDINGS I, L.L.C.; MID-CONTINENT HOLDINGS II, L.L.C., Debtors
LINN OPERATING, INCORPORATED, Appellant OKLAHOMA STATE TREASURER, Unclaimed Property Division, Appellee
from the United States District Court for the Southern
District of Texas
DAVIS, JONES, and DENNIS, Circuit Judges.
H. JONES, CIRCUIT JUDGE.
district court held that the bankruptcy court erred in
dismissing a post-confirmation attempt by the Oklahoma State
Treasurer ("Treasurer") to obtain the right to
unclaimed royalty payments owed by the oil and gas debtor.
Because the Treasurer sat on its rights during the entire
Chapter 11 process, res judicata bars its claim. We REVERSE
the district court judgment and reinstate the bankruptcy
court's DISMISSAL of the Treasurer's case.
Energy, LLC ("Linn") is an oil and gas company that
operates in Texas and Oklahoma. In May 2016, Linn and
fourteen affiliated entities filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code. The
bankruptcy court set a deadline requiring all "Proofs of
Claims" from "[a]ll governmental units holding
claims . . . that arose . . . prior to the Petition
Date" to be filed by November 7, 2016. The Treasurer
timely filed three proofs of claim on August 29 for
"unknown/contingent" amounts, which it described as
"unsecured." The Treasurer stated that it had filed
the claim pursuant to Oklahoma's "unclaimed property
law," and that it was "acting as a conservator or
custodian on behalf of the classes of persons . . . who have
failed to claim property owing to them for the statutory
period of abandonment."
November 2016, Linn filed a report with the Treasurer
indicating that it possessed $956, 212.72 in unclaimed
property but did not transfer those assets to the Treasurer.
The Treasurer contends that Linn was required by state law to
deliver the unclaimed-property funds when it filed the
report, but it did not then file an adversary complaint
demanding that Linn turn over the funds. Significantly, on
December 5, the Texas Comptroller filed an adversary
complaint against Linn for unclaimed property owed to Texas
residents after Linn disclosed $1.5 million in
unclaimed-property holdings to that agency. See
Complaint for Turnover and Payment of Unclaimed Property and
Related Relief, In re Linn Energy, LLC, No. 16-06023
(Bankr.S.D.Tex. Dec. 5, 2016), ECF No. 1.
December 19, Linn sent all claimants in the bankruptcy case-
including the Treasurer and the Texas Comptroller-a ballot
for voting on its proposed Plan of Reorganization ("the
Plan"). The Treasurer did not vote, but the Texas
Comptroller filed an objection to confirmation because the
Plan purported to distribute the unclaimed property assets of
Texas residents, as unsecured assets, among parties other
than the Comptroller. On January 27, 2017, the bankruptcy court
entered an order confirming the Plan, but the order expressly
authorized the Texas Comptroller to pursue its claims for
features of the Plan are critical here. First, a section
titled "Preservation of Royalty and Working
Interests" provided that "any right to payment from
a Royalty and Working interest, if any, shall be treated as a
Linn General Unsecured Claim under this Plan and shall be
subject to any discharge and/or release provided
hereunder." Second, the vesting clause stated that,
except as otherwise provided in the Plan, "all property
in each Estate, all Causes of Action, and any property
acquired by any of the Linn Debtors pursuant to the Plan
shall vest in [Linn], free and clear of all Liens, Claims,
charges, Interests, or other encumbrances" once the Plan
became final. Finally, the Plan's discharge provision
stated that, pursuant to Section 1141(d) of the Bankruptcy
Code, and except as otherwise stated by the Plan, "the
distributions, rights, and treatment that are provided in the
Plan shall be in complete satisfaction, discharge, and
release, effective as of the Effective Date[ ] of Claims[, ]
. . . Interests, and Causes of Action of any nature
whatsoever." That section of the Plan further enjoins
any parties to the proceedings from commencing or continuing
a claim related to the bankruptcy estate after the Plan
received final approval.
parties to the bankruptcy case had fourteen days in which to
appeal the order, see Fed. R. Bankr. P. 8002, and on
the final day of the appeal period, a group of claimants
moved for reconsideration and relief from the
order.After the claimants agreed to a stipulation
with Linn, the motion for reconsideration was withdrawn with
prejudice on March 6. Thereafter, no claimant appealed the order
or moved for reconsideration, and the confirmation became
final on March 20.
two months later, Linn objected to the Treasurer's proofs
of claim for "unknown contingent" unclaimed
property, asserting that it was not liable for such claims
and that the Bankruptcy Code preempted state unclaimed
property laws. The Treasurer responded to the objection and
then filed an adversary complaint against Linn. The Treasurer
asserted that Linn possessed, but did not own, $965, 216.72
in unclaimed property consisting of investors' mineral
royalties from Linn's Oklahoma oil and gas operations and
that Linn was required by Oklahoma law to turn over the funds
to the Treasurer.
moved to dismiss the Treasurer's adversary complaint
pursuant to Bankruptcy Rule 7012(b)(6), analogous to
Fed.R.Civ.P. 12(b)(6), asserting that the claim violated the
Plan's injunction, vesting, and discharge provisions and
was barred by the principles of res judicata and preemption.
The Treasurer re-emphasized that the unclaimed property never
belonged to Linn. Consequently, it never became part of the
bankruptcy estate and could not be governed by the Plan.
After a hearing, the bankruptcy court sided with Linn.
Granting the motion to dismiss, the court concluded that the
Treasurer had "received more than adequate due
process," and that its complaint amounted to a
prohibited "collateral attack" on the confirmed
Treasurer appealed to the district court, which reversed the
bankruptcy court's dismissal on the grounds that the
unclaimed property never became part of the bankruptcy
estate, and therefore the bankruptcy court did not have
jurisdiction to adjudicate its status. Linn moved ...