Encountering a near-death experience in 1985 when Pennzoil won a $10.5 billion jury verdict, Texaco filed a chapter 11 petition in April 1987 and was resurrected through confirmation of a plan in March 1988.

For the last 10 years, the reorganized debtor has been embroiled in litigation in Louisiana state courts, with several Louisiana parishes seeking damages under state law for environmental impairments. Aiming to quash the Louisiana litigation by reanimating the 1988 plan, the reorganized debtor asked Bankruptcy Judge David S. Jones of New York to reopen the chapter 11 case and declare that the parishes’ claims were discharged 37 years ago.

In a 65-page opinion on February 21, Judge Jones did reopen the case, to preclude the possibility of inconsistent decisions in the state courts. However, he went on to decide that the debtor intentionally left environmental claims of the type unimpaired by the plan to enable a quick exit from chapter 11. He therefore held that the parishes’ environmental claims were not discharged by plan confirmation in 1988.

The Single-Purpose 1988 Plan

Reciting the facts, Judge Jones cited a Texaco decision from 2000 for saying that the “sole purpose” for the chapter 11 filing was to compromise the $10.5 million Pennzoil judgment. Indeed, it didn’t take the debtor long in chapter 11 to negotiate a $3 billion cash settlement with Pennzoil, to be effected through confirmation of a chapter 11 plan.

As an oil company, the debtor was dealing with environmental claims all across the map in the ordinary course of business. The environmental claims were not the cause of the bankruptcy, and discharging the environmental claims would have delayed confirmation.

Saying that the debtor needed “a quick turnaround,” Judge Jones described the bar date order in early 1988 as having exempted creditors from filing claims based on 13 federal environmental statutes and similar state laws.

To the same end, the chapter 11 plan provided that claims arising under the 13 federal environmental statutes would not be discharged and would survive confirmation as if the chapter 11 case “had not been commenced.” The bankruptcy court confirmed the plan in March 1988.

Beginning in 2013, Louisiana parishes filed 22 lawsuits in state courts seeking to hold the reorganized debtor liable under state law for land loss and contamination. When one of the suits was scheduled for trial in March 2025, the debtor filed the instant motion in November asking Judge Jones to reopen the case and rule that confirmation had discharged the claims in the state court cases.

Reopening

Judge Jones first dealt with the six standards for deciding whether a case will be reopened. Opting to reopen, he said that the “essence” of the decision was based on his “conclusion . . . that reopening Reorganized Texaco’s case is the best way — really the only feasible way — to achieve a prompt, actionable, and broadly applicable determination of the impact of Reorganized Texaco’s discharge on the Louisiana Lawsuits.”

“The unpalatable alternative,” Judge Jones said, would “oblige . . . multiple courts that did not issue the order or preside over the case . . . to risk inconsistent outcomes interpreting this Court’s discharge order while consigning litigants to potentially fruitless and burdensome trials and associated litigation.”

Reopening the case, Judge Jones noted that “the Louisiana Plaintiffs themselves acknowledged that their most preferred outcome would be for the Court to reopen the case and rule in their favor on the merits of the Discharge Motion.”

No Discharge

With regard to whether the claims were discharged, the debtor contended that claims passed through bankruptcy unimpaired only if they arose under 13 federal environmental statutes or state “analogs.” The debtor argued that the Louisiana statute was not an “analog” and that the state had enacted other statutes to implement and enforce the 13 federal laws.

“Try as Reorganized Texaco might to show otherwise,” Judge Jones held, the Louisiana claims “fall squarely within the . . . definition of environmental claims that are not discharged or enjoined under the Plan.” The conclusion, he said, was “consistent with the Plan’s purpose and objectives . . . aimed at resolving the enterprise-threatening Pennzoil judgment.” He added, “Reorganized Texaco’s contrary reading of the Plan is unduly cramped and unpersuasive.”

Finding that the plan was unambiguous, Judge Jones said that “the Debtor who drafted the provision should not benefit from a new, restrictive reading of its own elastic wording.” He granted the motion to reopen and concluded that the Louisiana claims were not discharged.