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In re Stone & Webster

February 24, 2009

IN RE: STONE & WEBSTER, INCORPORATED, ET AL., DEBTORS
SAUDI AMERICAN BANK
v.
SHAW GROUP, INC.; SWINC ACQUISITION THREE, INC.; SWE&C LIQUIDATING TRUSTEE, SUCCESSOR TO STONE & WEBSTER ENGINEERING CORPORATION, ET AL. SHAW GROUP, INC., APPELLANT



Appeal from the United States District Court for the District of Delaware (D.C. Civil Action No. 04-cv-00834) District Judge: Honorable Sue L. Robinson.

The opinion of the court was delivered by: Ambro, Circuit Judge

PRECEDENTIAL

Argued April 18, 2008

Before: SCIRICA, Chief Judge, AMBRO and FISHER, Circuit Judges

OPINION OF THE COURT

Stone & Webster, Incorporated ("Stone & Webster") and its subsidiaries-including Stone & Webster Engineering Corporation ("SW Engineering")-filed for Chapter 11 bankruptcy protection in the District of Delaware. Shortly thereafter, Stone & Webster and its subsidiaries entered into an asset purchase agreement ("Purchase Agreement") with the Shaw Group, Inc. ("Shaw") to sell substantially all of their assets. The District Court approved the Purchase Agreement in a Sale and Assumption Order ("Sale Order").

At issue is whether by this transaction Shaw assumed a guaranty obligation of SW Engineering to Saudi American Bank ("SAMBA"). In that rare case where the seller and purchaser agree, SW Engineering and Shaw have argued that the latter did not assume the guaranty.*fn1 SAMBA contends otherwise.

The District Court, through a different Judge than the one who entered the Sale Order, agreed with SAMBA's view and granted summary judgment in its favor. In separate proceedings, the Court also awarded SAMBA pre- and post-judgment interest on the guaranteed debt, as well as attorneys' fees and other litigation costs.

Because we believe the Court misinterpreted the Purchase Agreement and Sale Order, we reverse its grant of summary judgment. While this decision further requires us to vacate the award of pre- and post-judgment interest, attorneys' fees and other litigation costs, we note our agreement with the Court's analysis of those issues.

I. Factual and Procedural Background

In 1980, SW Engineering formed a joint venture with Abdullah Said Bugshan & Bros. ("Bugshan"), a Saudi Arabian company. The joint venture obtained a contract with the Saudi Arabian American Oil Company ("Aramco") to upgrade an oil refinery at Ras Tanura in Saudi Arabia (known as the "in-kingdom project" or "project number 65004/00"). In a separate contract, SW Engineering agreed to provide manufactured goods to Aramco for use at Ras Tanura (called the "out-of-kingdom project" or "project number 05062011").

To fund the in-kingdom project, the joint venture borrowed $35,000,000 from SAMBA. Bugshan and SW Engineering facilitated the granting of this loan by individually guarantying 50% of the amount owed by the joint venture to SAMBA (in the case of SW Engineering, the "Guaranty"). See Saudi American Bank v. Shaw Group, Inc. ("Saudi American Bank I"), No. 00-2142, 2005 WL 1036556, at *1 (D. Del. May 3, 2005). Following completion of the in-kingdom project, the joint venture was unable to repay the loan and SW Engineering and Bugshan began making payments pursuant to their guaranties. SW Engineering confirmed its obligation to pay this debt in a 1998 payment letter to SAMBA (the "Payment Letter").

When Stone & Webster and its subsidiaries filed their bankruptcy petitions in 2000, SW Engineering owed SAMBA $6,728,549 on the Guaranty. Shortly after those filings, Shaw purchased substantially all of the Stone & Webster entities' assets through an auction sale. The companies stated the terms of this sale in the Purchase Agreement.

That document, which states that it is governed by Delaware law, labels the assets and liabilities of the sellers as either "assumed" by Shaw or "excluded" from the deal. As is typical, assumed assets and liabilities are those not excluded from the Purchase Agreement. Thus the definitions of Excluded Assets and Excluded Liabilities have controlling importance.

Section 2.02 of the Purchase Agreement defines "Excluded Assets" as all Rejected Contracts, Completed Contracts, and Special Project Claims.

* "Rejected Contracts" are any contracts or related obligations listed by Stone & Webster on Schedule 5.16(b). That schedule lists fifteen projects, none of which relates to SW Engineering's work at the Ras Tanura facility.

* "Completed Contracts" and their related receivables and drawings are "those specifically set forth on Schedule 2.02(b), under which substantially all of the contractual work effort of Sellers has been completed." Included within Schedule 2.02(b) is a notation of the in-kingdom project name, Aramco Ras Tanura (Bugshan), but with the out-of-kingdom project number, 05062011.

* "Special Project Claims" are "any and all claims under the project agreements set forth on Schedule 2.02(e)." That schedule lists the "Ras Tanura, Saudi Arabia, Refinery Upgrade Project," specifically noting the in-kingdom project number (65004/00) and the presence of "one or more potential claims for payment under a series of Letters of Credit issued by [SAMBA]."

The Purchase Agreement defines "Excluded Liabilities" in § 1.01 as

any and all liabilities or obligations of [Stone & Webster and its subsidiaries] of any kind or nature, other than the Assumed Liabilities, including those liabilities or obligations described in Section 2.04, whether known or unknown, fixed or contingent, recorded or unrecorded, and whether arising before or after the Closing, including . . . surety or other bonds relating to Completed Contracts or Rejected Contracts.

App. at A118. In addition, § 2.04 notes that "Excluded Liabilities" are "liabilities or obligations associated with any Excluded Assets" or "associated with any and all indebtedness of [Stone & Webster and its subsidiaries] for borrowed money not included in the Assumed Liabilities." The phrase "liabilities or obligations" is not defined, but provisions of the Purchase Agreement indicate, as one would expect, that guaranties are liabilities.*fn2

Perhaps because the parties were unsure which assets and liabilities were being transferred to Shaw, Sections 2.07 and 5.17 of the Purchase Agreement permit Stone & Webster and its subsidiaries to amend schedules "to reflect any changes required as a result of the addition of applicable Subsidiaries" and to execute any new documents "that may be reasonably necessary or desirable." Id. at A133, A158. Section 7.01(a) further explains that any added or amended schedule is "deemed to have been made and delivered as of the Effective Date [of the Purchase Agreement]." Id. at A163.

After reviewing the Purchase Agreement, the District Court approved the sale of Stone & Webster's assets in the Sale Order.*fn3 The Order adopts "all of the terms and conditions" of the Purchase Agreement, but it adds protections for third parties claiming repayment rights under a contract or asset assumed by Shaw. For example, it states that Shaw "will cure . . . any default existing prior to the date hereof under any of the Assumed Contracts." Id. at A432 (Paragraph S of the Order). It also states that "all rights and remedies of any non-debtor party or Shaw under any of the Assumed Contracts . . . are fully preserved and shall be fully enforceable after the Closing against Shaw or the non-debtor party . . . ." Id. at A437 (Paragraph 12 of the Order). No party objected to the addition of these terms.

Following conclusion of the asset sale, SAMBA filed a cure claim against SW Engineering for payment of $6,728,549 pursuant to the Guaranty.*fn4 Shaw did not contest this claim until it filed its Second Omnibus Objection to Claims in April 2001. See id. at A1078--90. SAMBA thereafter filed suit against Shaw and SW Engineering in the Bankruptcy Court for the District of Delaware. SAMBA asked the Court to determine that the Guaranty and Payment Letter were Assumed Liabilities for which Shaw was responsible, or, in the alternative, to allow SAMBA's cure claim as an unsecured claim against SW Engineering. After successfully moving for a withdrawal of the proceeding to the District Court, Shaw answered SAMBA's claim with a motion for summary judgment.*fn5 Shaw alleged that SAMBA lacked standing to sue under the ...


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