On January 28, Judge David Jones of the Bankruptcy Court for the Southern District of Texas sanctioned BP after finding that its conduct in an arbitration proceeding involving the Seadrill debtors amounted to a “willful, knowing, and intentional” violation of the Bankruptcy Code’s automatic stay provisions. Judge Jones also sanctioned BP by awarding Seadrill their attorneys’ fees and costs in bringing the motion.
Seadrill brought an emergency motion to enforce the automatic stay pursuant to Section 362 of the Bankruptcy Code in connection with a post-petition order issued by an arbitration tribunal that required Seadrill to post a $1.7 million bond should it lose the arbitration. If Seadrill did not post the bond, the arbitration would not continue.
The arbitration concerns a contract between Seadrill and BP, which provided offshore oil rigs and rig services. Seadrill had brought the arbitration pre-petition to recover $51 million. That claim is a key source of recovery under Seadrill’s plan of reorganization. After Seadrill filed for bankruptcy, and just two days before the hearing in the arbitration that was scheduled for December 15, 2020, BP made a series of requests: 1) for its attorney’s fees: 2), for the arbitration tribunal to order Seadrill to post a $1.7 million bond; and 3) delay the arbitration from until they Seadrill posted the bond. The arbitration panel granted BP’s requests, but expressly stated that it was not seeking to circumvent the bankruptcy court’s authority. But BP had not sought authorization from the bankruptcy court before making its application or after the tribunal awarded its relief.
In a hearing that Judge Jones described as filled with “tension,” he began by asking Seadrill’s counsel how “strong” they wanted the Court’s order to be, initially suggesting that the order could simply state that the arbitration tribunal’s order was void ab initio. After argument from counsel, the Court stated that, by not seeking authority from the Court first, BP’s conduct had challenged the Court’s authority and it appeared BP was trying to “hide things from the Court.” After the Court suggested the parties take a recess, BP consented to the entry of an order providing that Seadrill would not be required to post a bond. The Court then made findings on the record regarding the intentional violation of the automatic stay, and ruled that the tribunal’s order was ineffective and void, and that the Seadrill estate would not bear be required to pay the cost of having to file the emergency motion to challenge BP’s “illicit” conduct and inappropriate request to the arbitration panel.
Judge Jones’ decision comes months after his forceful reactions to the conduct of a member of the creditors’ committee in the Neiman Marcus bankruptcy case that led to criminal charges against that member. Herrick previously covered those events here.