Opposition Brief — Saudi American Bank v. SWE&C Liquidating Trust

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No. 09-394

In the Supreme Court of the Gnited States

SAUDI AMERICAN BANK,

Petitioner,

Vv.

SWE&C LIQUIDATING TRUST, successor-in-interest to

STONE & WEBSTER ENGINEERING CORP.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

For the Third Circuit

BRIEF IN OPPOSITION

James E. Houpt Lorraine S. McGowen

Counsel of Record ORRICK, HERRINGTON &

ORRICK, HERRINGTON & SUTCLIFFE LLP

SUTCLIFFE LLP 666 Fifth Avenue

400 Capitol Mall New York, NY 10103

Suice 3000 Telephone: (212) 506-5000

Sacramento, CA 95814 Facsimile: (212) 506-5151

Telephone: (916) 329-7949

Facsimile: (916) 329-4900

Counsel for Respondent

December 30, 2009

LIST OF PARTIES AND CORPORATE

DISCLOSURE STATEMENT PURSUANT TO .

SUPREME COURT RULE 29.6

The SWE&C Liquidating Trustee is the court-

appointed trustee of the SWE&C Liquidating Trust

(“Trust”). The Trust is not a corporation. However,

among other creditors, shareholders of the formerly

publicly traded Stone & Webster, Incorporated, are

indirect beneficiaries of the Trust through claims

heid by the Consolidated SWINC Estate.

No other party listed as a Respondent in

Petitioner’s case caption participated in the relevant

motion proceedings or appeals in the lower courts.

TABLE OF CONTENTS

LIST OF PARTIES AND CORPORATE

DISCLOSURE STATEMENT

TABLE OF CONTENTS

TABLE OF AUTHORITIES

STATUTES INVOLVED

iis dusvensevevisesesxeacssrvecesenssersvesoves 3

STATEMENT OF THE CASE

REASONS FOR DENYING THE PETITION

A. No Circuit Split Exists On The Issue That

Petitioner Wants This Court To Decide: An

Individual Creditor’s Unconditional Right

To Intervene In Adversary Proceedings. ........

~~

. The Dearth Of Circuit Cases On The Issue

Of A Committee’s Right To Intervene Does

Not Validate Petitioner’s Claim That

A Creditor’s Right To Intervene Is An

Important Question Of Federal Law.............11

CONCLUSION. ..............:.... iaesihtrietesinin shes

RESPONDENT'S APPENDIX:

Transcript of Proceedings,

April 25, 2006........ ee, |

TABLE OF AUTHORITIES

Cases

Ashcroft v. Iqbal,

129 S. Ct. 1937 (2008)

Fuel Oil Supply & Terminaling v. Gulf Oil Corp..,

762 F.2d 1283 (5th Cir. 1985)

Iridium India Telecom Ltd. V. Motorola, Inc.

(In re Iridium Operating, LLC),

329 B.R. 403 (S.D.N.Y. 2005)

Kowal v. Malkemus (In re Thompson),

OGD F.2e LIDS CISC Car. LOGE) on cccccessccssvesesessscsssene 10

Official Unsecured Creditors’ Comm. v. Michaels

(In re Marin Moior Oil, Inc.),

689 F.2d 445 (3d Cir. 1982).............. Een armen re 9

Phar-Mor, Inc. v. Coopers & Lybrand,

22 F.3d 1228 (3d Cir. 1994)

Richman v. First Woman’s Bank Un re Richman),

1046 FS GEE COE CAP, TBBT). ccnsescocccccscccocsccsccnseces 10

Smart World Techs., Inc. v. Juno Online Svcs., Inc.

(In re Smart World Techs., LLC),

423 F.3d 166 (2d Cir. 2005)......... LPR At aA 10

TABLE OF AUTHORITIES

Cases

(Contd.)

Page

SWE&C Liquidating Trust v. Saudi Arabian Oil Co.

(In re Stone & Webster, Incorporated),

373 B.R. 353 (Bankr. D. Del. 2007)

Term Loan Holder Comm. v. Ozer Group,

L.L.C. (In re Caldor Corp.),

303 F.3d 161 (2d Cir. 2002)

Vermejo Park Corp. v. Kaiser Coal Corp.

(In re Kaiser Steel Corp.),

998 F.2d 783 (10th Cir. 1993)........ aetna

Statutes & Rules

11 U.S.C. § 1102

11 U.S.C. § 1108 ...cecccsedecseeceeseee ree

11 U.S.C. § 1109

Internal Operating Procedures, 3d Cir., !

Supreme Court Rule 14

Secondary Authority

Chas. Alan Wright, et al.,

sebise nachos 11

pameneeneds 2,8

7-8, 9, 10

Federal Practice and Procedure (3d ed. 2007)

STATUTES INVOLVED

Title 11, United States Code

§ 1102. Creditor’s and equity security holders’

committees

(a) (1) Except as provided in paragraph (8), as

soon as practicable after the order for relief under

chapter 11 of this title, the United States trustee

shall appoint a committee of creditors holding

unsecured claims and may appoint additional

committees of creditors or of equity security holders

as the United States trustee deems appropriate.

(2) On request of a party in interest, the court

may order the appointment of additional committees

of creditors or of equity security holders if necessary

to assure adequate representation of creditors or of

equity security holders. The United States trustee

shall appoint any such committee.

(3) On request of a party in interest in a case

in which the debtor is a small business debtor and

for cause, the court may order that a committee of

creditors not be appointed.

(4) On request of a party in interest and after

notice and a hearing, the court may order the United

States trustee to change the membership of a

committee appointed under this subsection, if the

court determines that the change is necessary to

ensure adequate representation of creditors or equity

security holders. The court may order the United

States trustee to increase the number of members of

a committee to include a creditor that is a small

business concern (as described in section 3(a)(1) of

the Small Business Act [15 USC § 632(a)(1)]), if the

court determines that the creditor holds claims. (of

the kind represented by the committee) the

aggregate amount of which, in comparison to the

annual gross revenue of that creditor, is

disproportionately large.

§ 1103. Powers and duties of committees

(c) A committee appointed under section 1102 of

this title [11 USC § 1102] may —

(1) consult with the trustee or debtor in

possession concerning the administration of the case;

(2) investigate the acts, conduct, assets,

liabilities, and financial condition of the debtor, the

operation of the debtor’s business and _ the

desirability of the continuance of such business, and

any other matter relevant to the case or to the

formulation of a plan;

(3) participate in the formulation of a plan,

advise those represented by such committee cf such

committee’s determinations as to any plan

formulated, and collect and file with the court

acceptances or rejections of a plan;

(4) request the appointment of a trustee or

examiner under section 1104 of this title [11 USC

§ 1104]; and

(5) perform such other services as are in the

interest of those represented.

INTRODUCTION

If this were the time to resolve a split among

three circuit courts about the right of official

committees in bankruptcy cases to intervene in

adversary proceedings, this is not the case to

accomplish that task. Petitioner Saudi American

Bank has seized on that split to create the

appearance of an issue worthy of certiorari — but

Petitioner has advanced no reason why it, as an

individual creditor, should claim the same rights as

official committees to intervene in adversary

proceedings, a conclusion that no circuit court has

yet advanced.

Not only are the facts of this case the wrong facts

to resolve the split, the split does not even present

itself in the underlying case. The only way that this

Court can consider the split is by deciding: (1) that

the Third Circuit did not follow its own alleged “rule”

that differs from the Fifth Circuit’s “rule”; (2) that

the Third Circuit should have followed its own

“rule”; and (3) that if the Third Circuit had followed

that “rule,” the Third Circuit’s holding would be

contrary to the Fifth Circuit “rule.” But the “rules”

arise under facts that diverge too sharply from the

facts of this case to allow anything but a theoretical

discussion of the circuit split. Certiorari is not

appropriate in this case.

STATEMENT OF THE CASE

Petitioner Saudi American Bank had long since

resolved its own claim against any debtor in the

bankruptcy case when Petitioner attempted: to

intervene in an adversary proceeding pending in the

United States Bankruptcy Court for the District of

Delaware, one month after hearing about a possible

settlement in the proceeding. As Petitioner

implicitly concedes, it was motivated solely to hijack

a settlement that seemed to have been reached

between a debtor in the bankruptcy case, Stone &

Webster Engineering Corporation (“SWEC”), and

Saudi Arabian Oil Company (“Aramco”). Petitioner

did not claim to have any evidence, experience, or

knowledge to help prosecute or defend SWEC’s

claims. Petitioner’s sole justification for intervening

was its claim to have a perfected security interest in

proceeds of any settlement.

Two years later in 2004, the initial proposed

settlement was history and Respondent, the SWE&C

Liquidating Trust (“Trust”), succeeded to SWEC’s

interests to resolve all remaining claims against

SWEC and to prosecute SWEC’s claims against third

parties for the benefit of SWEC’s creditors. The

Trust assumed control of the adversary proceeding

against Aramco. When the bankruptcy court sought

an update on the case, counsel for the Trust

announced in court that the Trust intended to file an

amended complaint, and advised that Aramco

intended to pursue its long-dormant motion to

withdraw the reference. The bankruptcy court,

however, ordered mediation

When Petitioner learned in 2006 that the Trust

and Aramco had agreed to terms of a new tentative

settlement following mediation and long, difficult

negotiations, Petitioner demanded that the

bankruptcy court’ hear Petitioner’s motion to

intervene filed four years earlier.

The bankruptcy court’s decision! establishes why

intervention was inappropriate: Documents attached

to and referenced in the complaint-in-intervention,

and even documents and declarations submitted to

support intervention, did not show that. Petitioner

had perfected a security interest that could attach to

any settlement — facts and conclusions reiterated by

the bankruptcy court in a later decision. See

SWE&C Liquidating Trust v. Saudi Arabian Oil Co.

(In re Stone & Webster, Incorporated), 373 B.R. 353,

364 (Bankr. D. Del. 2007) (“At the hearing on

SAMBA’s intervention motion, SAMBA’s counsel did

not attempt to validate the assignment under Saudi

law, or any other law. Thus, I conclude again that

SAMBA has not proved that it has a perfected

security interest in the contract proceeds.”)

1 Though this Court’s rules required Petitioner to provide “[a]n

appendix containing the opinions, orders, findings of fact,

and conclusions of law, whether written or orally given and

transcribed” (Sup. Ct. R. 14(i) (emphasis added)), Petitioner

inexplicably omitted the bankruptcy court's detailed analysis at

the hearing on Petitioner's motion to intervene (See

Respondent’s Appendix (Transcript of Proceedings, April 25,

2006).) Petitioner included only the bankruptcy court's order

resulting from that decision. (See Petition, Appendix D at 14a.)

Petitioner’s failure to present authority or

evidence at any stage of the proceedings that it

perfected a security interest under any applicable

law doomed all of Petitioner’s intervention theories.

See 7C Chas. Alan Wright, et al., Federal Practice

and Procedure § 1914 at 523 (3d ed. 2007)

(instructing that a proposed complaint-in-

intervention “must state a good claim for relief”).

Petitioner argued in response only that the

bankruptcy court had to accept Petitioner's

conclusory allegation that it had a perfected security

interest — an argument that this Court seemingly

foreclosed when it held that courts should not accept

conclusory legal allegations where the facts do not

support the allegations. See Ashcroft v. Iqbal, 129 S.

Ct. 1937, 1949 (2008) (“[T]he tenet that a court must

accept as true all of the allegations contained in a

complaint is inapplicable to legal conclusions.”).

The Third Circuit was no more impressed by

Petitioner's claim of a perfected security interest, but

affirmed on the basis that even a perfected interest

in litigation proceeds does not justify intervention.

(See Petition, Appendix A at 4a (“Even granting a

charitable interpretation to the assignment on which

SAMBA relies to justify its intervention, this Court

agrees with the District Court and the Bankruptcy

Court before it that having a claim to proceeds of

collateral does not entitle a party to intervene.”

(emphasis added)).) Nevertheless, Petitioner argues

that it is entitled to intervene in the action between

the Trust and Aramco even if SAMBA cannot

demonstrate a cognizable claim in the litigation

REASONS FOR DENYING THE PETITION

Petitioner argues that the Third Circuit was

wrong to find that an interest in proceeds of

litigation is insufficient in itself to justify

intervention. Petitioner ignores the bankruptcy

court’s findings that Petitioner failed to prove a

perfected interest “under Saudi, or any other law.”

SWE&C Liquidating Trust, 373 B.R. at 364.

Pushing aside these grounds for finding its case for

intervention to be deficient, Petitioner argues for

certiorari to resolve “an important question of

federal law on which the circuit courts are split.”

(Petition at 10.) The circuit split is illusory on the

facts of Petitioner’s case, however. Even on facts

that are far more compelling than Petitioner’s case,

the history of the issue does not show it to be an

important question of federal law.

A. No Circuit Split Exists On The Issue That

Petitioner Wants This Court To Decide:

An Individual Creditor’s Unconditional!

Right To Intervene In Adversary

Proceedings.

Petitioner's theory relies upon a broad reading of

Bankruptcy Code § 1109(b)

A party in interest, including the debtor, the

trustee, a creditors’ committee, an equity

security holders’ committee, a creditor, an

equity security holder, or any indenture trus

tee, may raise and may appear and be heard

on any issue in a case under this chapter

11 U.S.C. § 1109(b).”

Petitioner argues that the right “to appear and be

heard” entitles any listed “party in interest” to

intervene in any adversary proceeding without

showing any protectable interest in the proceeding.

However, the circuit cases that Petitioner cites for

its theory limit their holdings to the narrow context

of intervention by official committees, appointed by

the United States Trustee, to represent the interest

of a specific constituency in the bankruptcy case.

See, e.g., 11 U.S.C. § 1102(a) (requiring United

States Trustee to appoint committees); 11 U.S.C.

§ 1103(c) (listing powers and duties of committees,

including the performance of “such . . . services as

are in the interest of those represented”).

The Second and Third Circuits have not extended

their holdings beyond committees, and both circuits

explicitly justify the holdings by the unique role that

committees play in a Chapter 11 case:

Section 1109(b) 1s an important monitoring

tool at the disposal of the _ creditors’

committee. Intervention under that section

appears to be appropriate to the extent it

will: (1) minimize the need for extensive

judicial oversight, (2) speed the debtor's

successful reorganization, and (3) allow the

creditors’ committee to exert enough leverage

2 This section applies only to so-called reorganization cases

under Chapter 11 of the Bankruptcy Code, and not to

liquidation cases under Chapter 7. See 11 U.S.C. § 1109(b)

(limiting application “to a case under this chapter’)

on the debtor-in-possession so that the

debtor-in-possession does not use _ its

extensive flexibility and discretion in a

Chapter 11 reorganization to compromise the

creditors’ interests. In short, interests of

efficiency and fair play underlie § 1109(b),

and the driving force behind the Marin

decision [Official Unsecured Creditors’

Comm. v. Michaels (In re Marin Motor Oil,

Inc.), 689 F.2d 445 (3d Cir. 1982))] was the

belief that allowing intervention — into

adversary proceedings would best serve

those interests.

Term Loan Holder Comm. v. Ozer Group, L.L.C. (In

re Caldor Corp.), 303 F.3d 161, 175-76 (2d Cir. 2002)

(quoting Phar-Mor, Inc. v. Coopers & Lybrand, 22

F.3d 1228, 1240 (3d Cir. 1994)). The cases may

discuss “creditors” in their broad strokes, but the

Second and Third Circuit justify intervention by the

responsibility of committees to police a case for the

benefit of their constituency. Thus, Petitioner’s case

is a poor choice to decide if committees have an

unconditional right to intervene.

On an individual creditor's unconditional right to

intervene, an issue not yet addressed by any circuit

court in a precedential opinion, the question is far

from ripe for review by this Court. Given the Third

Circuit’s rejection of Petitioner’s arguments, even

when Petitioner argued that Phar-Mor and Marin

bound the Third Circuit, the Third Circuit clearly

did not see either case as binding precedent on the

narrow issue in Petitioner's case.

10

No less so in the Second Circuit, “the scope of the

unconditional intervention right of a party in

interest as enunciated by .. . Caldor’ remains

unclear.” Smart World Techs., Inc. v. Juno Online

Sucs., Inc. (In re Smart World Techs., LLC), 423 F.3d

166, 181 (2d Cir. 2005) (quoting Jridium India

Telecom Ltd. V. Motorola, Inc. (In re Iridium

Operating, LLC), 329 B.R. 403, 406 (S.D.N.Y. 2005));

see also In re Iridium India Telecom, 329 B.R. at 406

(“[T]his Court need not address the question of

whether such right extends to a situation in which

the proposed intervenor does not seek to assert

claims or defenses in the underlying litigation.”).

Given the lack of any opinion by any other circuit

court on Petitioner’s narrow issue, no circuit split

currently exists on the issue of a creditor's right to

intervene.”

3 Petitioner cites three cases for the proposition that “other

Courts of Appeals . . . have indicated in dicta that they agree

with the Fifth Circuit’s conclusion” in Fuel Oil Supply &

Terminaling v. Gulf Oil Corp., 762 F.2d 1283, 1287 (5th Cir.

1985). (Petition at 14.) However, two of the three cases are

Chapter 7 cases where Bankruptcy Code § 1109 is

unambiguously inapplicable. See Richman uv. First Woman's

Bank (In re Richman), 104 F.3d 654, 658 (4th Cir. 1997)

(considering Fuel Oil Supply's reasoning persuasive on the

issue of intervention in a Chapter 7 case); Kowal v. Malkemus

(In re Thompson), 965 F.2d 1136, 1142 n.8 (ist Cir. 1992)

(holding that a creditor was not entitled to intervene-of-right in

a Chapter 7 case; comparing the holding of Fuel Oil Supply

with a Southern District of New York case that rejected Fuel

Oil Supply’s analysis). The sole Chapter 11 case involves a

purchaser of the debtor’s property, and not one of the listed

11

B. The Dearth Of Circuit Cases On The

Issue Of A Committee’s Right To

Intervene Does Not Validate Petitioner’s

Claim That A _ Creditor’s Right To

Intervene Is An Important Question Of

Federal Law.

Belying the alleged importance of the question,

only three circuits have issued published or

precedential opinions in twenty-eight years on the

issue of a commuittee’s unconditional right to

intervene. (See Petition at 14.) No published or

precedential case has considered the extension of

such a doctrine to creditors, and even the Third

Circuit did not consider the issue to be significant

enough to designate its opinion in Petitioner’s case

as precedential. Cf. Internal Operating Procedures,

3d Cir., 5.7 (“The court by tradition does not cite to

its not precedential opinions as authority. Such

opinions are not regarded as precedents that bind

the court because they do not circulate to the full

ccurt before filing.”).

Perhaps more importantly, whether or not a

committee has an unconditional right to intervene,

rather than a right to intervene as of right or grace,

may rarely be significant. Though the Fifth Circuit

agreed with the district court that the creditors’

“parties in interest” in Bankruptcy Code § 1109. See Vermejo

Park Corp. v. Kaiser Coal Corp. (In re Kaiser Steel Corp.), 998

F.2d 783, 790 (10th Cir. 1993) (finding that purchaser’s

contractual rights did not bestow a “significantly protectable

interest” in an adversary proceeding). The cited cases do not

illustrate a circuit split on any issue.

12

committee in Fuel Oil Supply had no unconditional

right to intervene, the circuit still reversed and

remanded for the district court to make “findings of

fact or conclusions of law” on the committee’s — to

intervene “as of right . .. or by permission... .”

Fuel Oil Supply, 762 F.2d at 1287-88. The trail goes

cold at that point. The record does not reveal

whether or not the committee ultimately won the

right to intervene. But given the broad standing

bestowed on committees because of their role in a

bankruptcy case, the differing approaches may make

little practical difference. Thus, even on the issue of

a committee’s right to intervene, the record is too

undeveloped to know if the Fifth Circuit approach

makes a real-world difference.

Petitioner’s case, not involving a committee,

would make review by this Court nothing more than

a speculative exercise. Even on the issue of a

committee’s right to intervene, the issue will benefit

from much more percolation in the lower courts

before making it ripe for review by this Court.

CONCLUSION

This case is inappropriate for certiorari for a

multiplicity of reasons. Most significantly, the

circuit split that Petitioner relies upon — whether

official committees in bankruptcy cases have an

unfettered right to intervene in adversary

proceedings — is inapplicable to the facts of

Petitioner’s case. Even if Petitioner’s case were up

to the task, the paucity of appellate cases provides a

13

weak record on which to determine what, if any,

impact the two approaches to intervention have on

the ability of committees to perform their statutory

function in bankruptcy cases.

To the extent that Petitioner asks this Court to

revisit the denial of its motion to intervene on any

other basis, Petitioner asks this Court to substitute

its judgment for the judgments of three lower courts,

including the bankruptcy court that examined

Petitioner’s conclusory allegations and found them

lacking on Petitioner’s facts. If the circuit split

needs the attention of this Court, the Trust

respectfully suggests that this is not the case and

this is not the time. The Trust prays that the Court

deny the Petition.

Respectfully submitted,

James E. Houpt,

Counsel of Record

ORRICK, HERRINGTON & SUTCLIFFE LLP

400 Capitol Mall

Suite 3000

Sacramento, CA 95814

Telephone: (916) 329-7949

Facsimile: (916) 329-4900

Lorraine S. McGowen

ORRICK, HERRINGTON & SUTCLIFFE LLP

666 Fifth Avenue

New York, NY 10103

Telephone: (212) 506-5000

Facsimile: (212) 506-5151

RESPONDENT'S

APPENDIX

APP.-1

UNITED STATES BANKRUPTCY COURT

DISTRICT OF DELAWARE

IN RE: . Chapter 11

STONE & WEBSTER, ee

INC.. et al. 00-2142(PJW)

Debtors. . sointly

Administered

STONE & WEBSTER, ,

INCORPORATED, and . 02-3963(PJW)

STONE & WEBSTER

ENGINEERING CORP., . April 25, 2006

et al., . 1:30 p.m.

(Wilmington)

Plaintiff,

We

SAUDI ARABIAN

OIL COMPANY,

Defendant.

TRANSCRIPT OF PROCEEDINGS

BEFORE THE HONORABLE PETER J. WALSH

UNITED STATES BANKRUPTCY COURT JUDGE

Proceedings recorded by electronic sound recording;

transcript produced by transcription service.

APP.-2

Page 6, |. 2, to page 7, l. 21:

THE COURT: Because as I. look at these

documents, I don’t know anything about Saudi

Arabian banking law, but under U.S. law, which I

assume is not applicable here, I doubt if you have an

assignment. And let me go through the documents.

Looking first at Exhibit 1 to your motion, this is

captioned Assignment of Contract Proceeds, I guess

the first thing I would note is that it’s dated the

22nd of January, 1995. You said the Loan was in

January of ‘98. But more importantly, that

document, quote, “Assignment of Contract Proceeds”

recites the assignor hereby assigns to the bank all

the proceeds of the contract. Further down on that

column it says, The assignor shall immediately

notify all payors under the contract of this

assignment in such form as may be required by

payor, or if no specific form is required, by letter in

substantially the following form. And then there’s a

form letter that says, We hereby advise you that we

have executed an assignment of proceeds in favor of

Saudi Arabian, Saudi American Bank. But that’s

not the letter that was sent, and I’m now looking at

Exhibit 2, which is a September 21, 1994, quote,

“Specific Payment Instruction Letter”, close quote.

And it reads, quote, “This letter” — and this is a

letter from the borrower to, to the Saudi Arabian Oil

Company — quote, “This letter requests and

authorizes you to pay Saudi American Bank, Floor

(phonetic) branch, P.O. Box 842, Alchobar (phonetic)

APP.-3

with a zip code, Saudi Arabia, for credit to our

account any and all compensation due from you

under contract number 65004.” It then goes on to

say, and I quote, “We shall mark all our invoices

presented to you pay to Saudi American Bank, Flvor

Branch, P. O. Box” etcetera “for account of Bugshan,

S & W Company Limited.” Close quote. That

doesn’t sound like an assignment to me. It sounds

like a direction as to what account the proceeds

should be paid, and it identifies account of the party

that contracted with the Saudi Arabian Oil

Company. Isn’t that what it says? Let me goon. In

Exhibit no. 4, which is a May 11, 2002 letter from

the bank to the oil company, it references an

assignment of all payments, and it says, We write to

remind Saudi Aramco that BS&W by letter dated

September 21, 1994, paren, (the, quote, “Specific

Payment Instruction Letter”, close quote) a copy of

which is attached, requested and authorized,

etcetera. And in Exhibit 5, the response from the oil

company to the bank is to confirm the assignment

and authorization contained in the subject specific

payment instruction letter which is not a letter

suggesting an assignment. And your response is?