January 3, 2019 – The Court hearing the Welded Construction case issued an order approving the Debtors’ settlement with Sunoco in respect of a construction services agreement (“The Master Construction Services Agreement”) and a related seal [Docket Nos. 392 and 393]. The Master Construction Services Agreement relates to work performed for Sunoco by the Debtors on the construction of Sunoco’s Mariner East 2 Pipeline which provides pipeline capacity from Ohio through West Virginia and Pennsylvania to transport natural gas liquids to the Marcus Hook Industrial Complex.
The motion requesting the settlement order [Docket No. 361] explained, “First, the probability of success in prosecuting the Debtor Claims, including defending against the Sunoco Counterclaims, is uncertain. The Debtor Claims, through which the Debtors would seek to recover in excess of $115 million from Sunoco, arise out of various legal theories against Sunoco, including breach of contract, turnover, and wrongful termination, among others. The Sunoco Counterclaims against the Debtors are based on costs incurred for the Debtors’ alleged non-conforming work with respect to the Debtor Project Spreads, costs incurred with respect to licensing and governmental agencies, costs for delay of the Project, legal costs, liquidated damages and lost revenue. Sunoco estimates the damages incurred to date on account of the Sunoco Counterclaims totals in excess of $300 million. Therefore, the Debtors would incur substantial risk if they were to litigate the merits of the Debtor Claims and the Sunoco Counterclaims.
“Specifically, the Agreement allows Sunoco to pay directly Subcontractors for their claims arising under the Agreement, and Sunoco is not required to obtain the Debtors’ consent to do so pursuant to the Indemnity and Direct Pay Provisions… Moreover, any recovery likely would be diluted by the Debtors’ additional and substantial professionals’ fees and expenses incurred in connection with collection efforts, which could take years to complete.
“Additionally, the possibility that Sunoco likely would assert setoff rights compounds the complexity related to the damages aspect. The disputes between the Parties are highly factual in nature and are not the types of claims easily resolved through motion practice. Given the significant claims involved, it is also likely that a protracted appeal process would occur after any final judgment was entered. The Settlement Agreement, however, resolves the Debtor Claims and Sunoco Counterclaims without the need for costly, uncertain litigation, provides for the payment of the Subcontractor Accounts Payable and a potential recovery for the Debtors’ estates.
“Finally, the interests of creditors are served by approval of the consensual Settlement Agreement. The Debtors will avoid the expense of litigating the Debtor Claims and Sunoco Counterclaims (which likely would amount to millions of dollars) while satisfying the Subcontractor Accounts Payable. The elimination of those claims potentially results in increased recovery for allowed general unsecured creditors. Moreover, the Debtors have consulted with the Committee with respect to the Settlement Agreement, and the Committee supports approval of the Settlement Agreement.”
Further the seal motion [Docket No. 362] noted, “The 9019 Motion contains non-public, confidential and commercially sensitive information regarding the timeline and the financial details contained in the Settlement Agreement (the ‘Confidential Information’), which the Parties have agreed to keep confidential. Moreover, the Debtors have narrowly tailored the redactions to prevent the disclosure of Confidential Information only.”
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