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Asarco, L.L.C. v. Montana Resources, Inc.

United States Court of Appeals, Fifth Circuit

June 2, 2017

ASARCO, L.L.C., a Delaware Corporation; ASARCO MASTER, INCORPORATED, a Delaware Corporation, Plaintiffs - Appellees
MONTANA RESOURCES, INCORPORATED, a Montana corporation; MONTANA RESOURCES, L.L.P., a Montana limited liability partnership, Defendants - Appellants

         Appeal from the United States District Court for the Southern District of Texas

          Before DAVIS, CLEMENT, and COSTA, Circuit Judges.

          GREGG COSTA, Circuit Judge.

         ASARCO, L.L.C., through an affiliate, became partners in a Montana copper mine with Montana Resources, Inc. (MRI). Because of financial troubles in the early 2000s, ASARCO was unable to meet cash calls the partnership required. When it failed to contribute on four occasions, MRI covered ASARCO's portion. But this was not an act of benevolence. By covering its partner's cash calls, MRI diluted ASARCO's interest in the partnership from 49.9% to nothing.

         About eight years after it lost its interest in the mine, ASARCO sent a letter invoking a clause in the partnership agreement that discusses a right to reinstatement. Surprisingly, the clause contains no time limit. In seeking reinstatement, ASARCO offered to pay MRI the full amount of the missed cash calls plus interest. MRI refused to bring ASARCO back into the partnership. ASARCO filed this lawsuit challenging that refusal.

         ASARCO's suit is complicated by a significant legal proceeding that took place after it missed the cash calls but before it sought reinstatement. Fiscal problems-likely the same that prevented it from making the partnership contributions-resulted in ASARCO filing Chapter 11 bankruptcy. MRI contends that two of ASARCO's decisions during that bankruptcy prevent it from now suing for reinstatement. First, it contends that an adversary proceeding the parties litigated has preclusive effect on the reinstatement claim. Second, it contends that ASARCO's alleged failure to disclose the potential partnership interest to the bankruptcy court estops it from now pursuing that interest. In this interlocutory appeal, we agree with the district court that neither of these arguments presents an obstacle to ASARCO's suit.


         An ASARCO affiliate[1] and MRI formed a mining partnership called Montana Resources in 1989. The partnership agreement provided that if a partner failed to pay a cash call within thirty days, that partner fell into default. The nondefaulting party could cover the deficit, but the defaulting partner's share would dilute by 1% for every $100, 000 it failed to contribute. According to ASARCO, section 12.02 of the agreement allows for reinstatement through the following provision: "[T]he defaulting partner may cure such default by contributing all amounts owed, plus interest at the Overdue Rate, to the non-defaulting partner and the Partnership, which repayment shall constitute reinstatement."

         During a fourteen month period starting in 2002, the affiliate missed four cash calls totaling more than $5 million. MRI covered all of them, which resulted in a reduction in the affiliate's interest from 49.9% to 25.3%, to 3.9%, to 1.2%, and finally to 0%. At that time, MRI purported to dissociate the affiliate from Montana Resources.

         In 2005, ASARCO and its affiliates filed for bankruptcy. As part of those proceedings, MRI filed Proofs of Claim against ASARCO to recover contingent environmental liability incurred by the partnership prior to ASARCO's bankruptcy. ASARCO responded by initiating an adversary proceeding. ASARCO alleged fraudulent transfer, breach of contract, and improper expulsion relating to its affiliate's dilution and purported dissociation from the partnership. The original complaint also alleged that ASARCO had a right to reinstatement after dilution. As a remedy, that complaint sought (1) a declaration that ASARCO had a right to reinstatement if it cured its default, and (2) monetary damages for income that ASARCO would have received had it not been improperly diluted. ASARCO later amended its complaint, dropping the declaratory judgment claim without prejudice. The other claims were dismissed with prejudice pursuant to an agreement between the parties, and shortly after the underlying bankruptcy concluded. The bankruptcy was a remarkable success: the plan offered full payment to all creditors.

         With its newfound solvency, ASARCO tried to get back its interest in the mine, as the mine was doing well. Two years after the bankruptcy plan was confirmed, ASARCO sent MRI a letter that tendered the full cure amount to cover the cash call defaults and notified MRI that ASARCO would commence all appropriate action if tender was not accepted within five business days. MRI did not accept, [2] and ASARCO filed this suit.

         The complaint alleges that MRI's failure to accept the tender constituted a breach of contract, along with other claims that accrued prebankruptcy. MRI initially filed a motion to dismiss based on ASARCO's lack of standing to prosecute claims postbankruptcy, judicial estoppel, and res judicata. The district court held that all undisclosed claims that existed during the bankruptcy or that were not specifically scheduled postbankruptcy were barred on standing, estoppel, or res judicata grounds.

         All was not lost for ASARCO, though, because the district court also ruled that none of these doctrines could bar the breach of contract claim that arose from the postbankruptcy tender and demand for reinstatement. For judicial estoppel and standing, the court reasoned that the breach of contract claim did not exist during bankruptcy, as the demand for reinstatement and tender had not yet occurred. For res judicata, the court held that the breach of contract was a new claim, unrelated to the other claims for coercive relief in the adversary proceeding. The court also concluded that the dropped request for declaratory relief concerning the right to reinstatement filed during the adversary proceeding did not have preclusive effect.

         Following discovery, MRI filed a motion for summary judgment, again arguing lack of standing, judicial estoppel, and res judicata. It also asserted a limitations defense. The district court rejected those procedural defenses. MRI also raised the principal merits issue: whether the partnership agreement allows ASARCO's attempted reinstatement. The court concluded that question could not be decided as a matter of law because of ambiguity in the reinstatement provision and inconclusive extrinsic evidence. The court was, however, able to grant summary judgment on another merits question that greatly weakened ASARCO's ...

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