Krafsur v. UOP (In re El Paso Refinery, L.P.) - 196 B.R. 58 (Bankr. W.D. Tex. 1996)

Rule:

In order to qualify as a lost volume seller, a plaintiff must establish the following three factors: (1) that it possessed the capacity to make an additional sale, (2) that it would have been profitable for it to make an additional sale, and (3) that it probably would have made an additional sale absent the buyer's breach. 

Facts:

The instant dispute arises from licensing agreements between the Defendant, UOP, and the Debtor, El Paso Refinery, L.P. ("L.P."). UOP is in the business of developing and licensing petroleum refining technology. The Debtor owned and operated a petroleum refinery. The Debtor and/or its predecessors in interest executed certain non-exclusive licenses which allowed the Debtor to use certain UOP patents and technologies (collectively, the "Licenses" or "Licensing Agreements"). On October 23, 1992 the Debtor filed for voluntary Chapter 11 relief. The Trustee filed this adversary proceeding, objecting to UOP's claim and seeking certain affirmative relief. Pursuant to an order dated May 4, 1993 the Debtor's Term Lenders foreclosed upon the "Refinery Assets." The Term Lenders then conveyed ownership of the refinery to a newly formed holding company, Refinery Holding Company, L.P. ("RHC"). RHC in turn entered into an operating agreement with Chevron USA ("Chevron") to have Chevron operate the refinery on behalf of RHC. The Trustee maintained that the money UOP ultimately received from RHC/Chevron represents either cure of the L.P. Licenses, or should be applied in mitigation of UOP's claim against L.P.

Issue:

Was UOP a lost volume seller?

Answer:

No

Conclusion:

 The court dismissed UOP’s claim against Debtor's estate for unpaid royalties and found that it was not a lost volume seller, that is, a seller entitled to extra benefits from the loss of a sale, because it had not demonstrated that it possessed the capacity to make an additional sale, that it would have been profitable for it do so, and that it probably would have done so absent buyer's breach. The court also found that Krafsur lacked standing to contest an alleged breach of contract between UOP and Debtor because the licenses in question never became part of Debtor's estate. Finally, the court found that equitable subordination of UOP’s claims was not justified because it had acted out of its own legitimate business interests at all times, even if its actions may have conflicted with those of creditors on a committee it participated in.