Energy Future Holdings Corp. v.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________

No. 19-3492
__________

IN RE: ENERGY FUTURE HOLDINGS CORP., aka TXU
Corp.; aka TXU Corp; aka Texas Utilities, et al.,
Debtors

NextEra Energy, Inc.,
Appellant
__________

On Appeal from the District Court
for the District of Delaware
(D.C. No. 1-18-cv-01253)
District Judge: Hon. Richard G. Andrews
__________

Argued July 2, 2020

Before: KRAUSE, PHIPPS, Circuit Judges, and
BEETLESTONE,* District Judge.

(Filed: March 15, 2021)

*
Honorable Wendy Beetlestone, United States District Court
for the Eastern District of Pennsylvania, sitting by designation.
 __________

OPINION
__________

James P. Bonner [ARGUED]
Joshua D. Glatter
Fleischman Bonner & Rocco
447 Springfield Avenue
2nd Floor
Summit, NJ 07901
Keith M. Fleischman
Fleischman Bonner & Rocco
81 Main Street
Suite 515
White Plains, NY 10601

Matthew B. McGuire
Landis Rath & Cobb
919 Market Street
Suite 1800, P.O. Box 2087
Wilmington, DE 19801
Counsel for Appellant NextEra Energy Inc.

Daniel G. Egan
Gregg M. Galardi [ARGUED]
Ropes & Gray
1211 Avenue of the Americas
New York, NY 10036

Jonathan R. Ference-Burke
Douglas H. Hallward-Driemeier

2
Ropes & Gray
2009 Pennsylvania Avenue, N.W.
Suite 1200
Washington, DC 20006
Counsel for Appellees Elliott Associates LP, Elliott
International LP, Liverpool Limited Partnership, UMB
Bank NA

Daniel J. DeFranceschi
Jason M. Madron
Richards Layton & Finger
920 North King Street
One Rodney Square
Wilmington, DE 19801

Mark E. McKane [ARGUED]
Kirkland & Ellis
555 California Street
Suite 2700
San Francisco, CA 94104
Counsel for Appellee EFH Plan Administrator Board

BEETLESTONE, District Judge.

This case arises from the bankruptcy of Energy Future
Holdings and its affiliates (“EFH” or “Debtors”). The Debtors’
most valuable asset was a significant economic interest in
Texas’ largest electric and power transmission and distribution
company, which NextEra Energy Inc. (“NextEra”), the
Appellant here, agreed to buy through a Merger Agreement.
Why the sale did not go through will be explained more fully
below, but suffice it to say for now that it did not. The issue

3
before us is whether NextEra should be paid for the work it did
in trying to consummate the deal.

This is the second time that NextEra has come to us
requesting compensation for its efforts under the Merger
Agreement. The first time, it sought payment of a $275 million
Termination Fee, but we agreed with the Bankruptcy Court that
it could not recover that fee. Now, NextEra seeks to recover
approximately $60 million in administrative fees pursuant to
11 U.S.C. § 503(b)(1)(A), inter alia. The Appellees contend
that the Merger Agreement requires the parties to bear their
own expenses, including the $60 million sought by NextEra.
We consider these arguments below.

I. BACKGROUND

A. The Merger Agreement and Its Termination

The procedural history that brings this matter to us is
labyrinthine—but a brief recitation is necessary to understand
the questions before us. On April 29, 2014, Debtors filed for
Chapter 11 bankruptcy. At the time, Debtors owned an 80
percent indirect economic interest in Oncor Electric Delivery
Company LLC (“Oncor”), Texas’s largest electric power
transmission and distribution company, which had avoided
going into bankruptcy with Debtors. Oncor is subject to the
regulatory control of the Public Utility Commission of Texas
(“PUCT”), which, in 2007, placed what is known as a “ring
fence” around Oncor. A ring fence essentially serves as a
barrier around portions of a company’s assets in order to
ameliorate risk. The ring fence around Oncor provided, inter
alia, for an independent board with the sole right to determine
dividends and placed restrictions on upstream distributions.
One of the primary reasons for the ring fence was due to the

4
sizeable debt tied to EFH: by putting the ring fence in place,
Oncor customers were protected from the risk this debt could
otherwise pose. Instead, the utility would be managed by a
wholly independent board not saddled with EFH’s burdens.

On September 19, 2016, the Bankruptcy Court
approved a proposed merger between Debtors and NextEra,
which included NextEra agreeing to pay off a significant
amount of Debtors’ debt in return for acquiring its interest in
Oncor (the “Merger Agreement” or “Agreement”). An
important feature of the Agreement was Section 8.5(b), which
provided for a Termination Fee of $275 million that would be
payable, subject to final Bankruptcy Court approval, to
NextEra if the Debtors terminated the Agreement (the
“Termination Fee”).

NextEra negotiated terms such that its acquisition of
Oncor was subject to removal of what were labelled in the
Agreement as “Burdensome Conditions.” This largely refers
to the PUCT-imposed ring fence. The ring fence would impact
NextEra’s ability to appoint or replace members of the Oncor
board of directors, place independence requirements for
potential board members above those imposed by the New
York Stock Exchange, and prevent Oncor “from making
distributions, dividends or other payments to [NextEra].”
SA.110-11.

Under the Agreement, if NextEra terminated the Merger
following a failure to obtain PUCT approval without the ring
fence, it would not trigger the Termination Fee provision.
However, if Debtors terminated the Merger following a failure
to achieve PUCT approval, this would trigger payment of the
Fee. This Fee would count as an administrative expense under
the Bankruptcy Code. Following a hearing, the Bankruptcy

5
Court confirmed Debtors’ Plan of Reorganization on February
17, 2016.

On October 31, 2016, Oncor and NextEra filed an
application with PUCT seeking approval of the Merger without
the ring fence. On April 13, 2017, PUCT denied the
application, citing as one of the key reasons for the denial that
the ring fence protected ratepayers from the possible
consequences of Debtors’ bankruptcy. Following the denial,
NextEra filed two motions for rehearing with PUCT
(supported by amicus briefs from Debtors), both of which were
denied. NextEra was entitled under the terms of the Agreement
to terminate the Agreement following PUCT’s denial, but it
chose not to. Rather, it filed an appeal in Texas state court.
See In re Energy Future Holdings Corp., 2019 WL 4751568,
at *3 (D. Del. Sept. 30, 2019).

On July 7, 2017, while the state court appeal was
pending, Debtors terminated the Merger Agreement. Six
weeks later, the Bankruptcy Court approved a merger between
Debtors and another entity—Sempra Energy—a deal it
confirmed on February 27, 2018. The price paid by Sempra
was approximately $9.45 billion, several hundred million less
than the approximately $9.8 billion NextEra had agreed to pay.
A significant difference between the deal terms was that the
Sempra merger agreement allowed for the ring fence to stay in
place.

B. The Application for the Termination Fee and
Motion for Reconsideration

On July 29, 2017, following the termination of the
Merger Agreement, creditors Elliott Associates, L.P., Elliott
International, L.P., and the Liverpool Limited Partnership

6
(collectively, “Elliott”) moved for the Bankruptcy Court,
pursuant to Federal Rule of Bankruptcy Procedure 9024, to
reconsider its initial approval of the Termination Fee. Elliot
argued that, in approving the Merger Agreement, the
Bankruptcy Court had not understood that NextEra had no
incentive to terminate the Merger Agreement if PUCT did not
approve the Oncor deal. To the contrary, it had every incentive
not to, in that if it terminated the Agreement, it would not
receive the Termination Fee, but if it waited for Debtors to
terminate, it would. Opposing the motion, NextEra filed an
application for payment of the Termination Fee (the “Expense
Application” or “Application”).

Following a hearing, the Bankruptcy Court granted
Elliott’s motion for reconsideration and modified the
Termination Fee provision. In re Energy Future Holdings
Corp., 575 B.R. 616, 637 (Bankr. D. Del. 2017), aff’d, 904
F.3d 298 (3d Cir. 2018). Setting the lens through which it was
to review the motion for reconsideration as to “correct manifest
errors of law or fact or to present newly discovered evidence,”
id. at 630 (quoting Max’s Seafood Cafe ex rel. Lou-Ann, Inc. v.
Quinteros, 176 F.3d 669, 677 (3d Cir. 1999)), the Bankruptcy
Court focused on the September 19, 2016 hearing, in which it
had considered the Merger Agreement. During that hearing,
the court asked a direct question regarding whether the
Termination Fee would be payable in the event PUCT denied
approval. In re Energy Future Holdings Corp., 575 B.R. at
632. Looking back at the transcript of the hearing, the
Bankruptcy Court realized that the parties’ answer to the
question had not been clear, and that lack of clarity led it to
have a subjective misunderstanding regarding the operation of
the Termination Fee. In its opinion granting the motion for
reconsideration, the Bankruptcy Court explained that:

7
The Court had a fundamental misunderstanding
of the critical facts when it approved the
Termination Fee. Despite the Court’s direct
question as to whether the Termination Fee
would be payable if the PUCT declined to
approve the NextEra Transaction, the record is
incomplete and confusing on that fundamental
point. The Court simply did not understand that
if the PUCT declined to approve the NextEra
Transaction and the Debtors (as opposed to
NextEra) terminated the Merger Agreement the
Termination Fee would be payable to NextEra.
Despite the obvious confusion on this point
neither the Debtors nor NextEra sought to clarify
the record and affirmatively state that NextEra
would receive the Termination Fee if the Debtors
terminated the Merger Agreement. . . .

The confusing record was critical because in
combination with another fact that was not
mentioned, i.e., the Merger Agreement had no
time limit, the reality was that under no
foreseeable circumstances would NextEra
terminate the Merger Agreement if the PUCT
declined to approve the NextEra Transaction.
Why? Because NextEra had the ability to hold
out and to pursue numerous motions for
reconsideration and a fruitless appeal until the
Debtors were forced by economic circumstances
to terminate the Merger Agreement, which is
exactly what occurred. If the Court had
understood these critical facts it would not have
approved this provision of the Termination Fee.

8
Id. at 632-33 (emphasis in original). With these findings in
mind, the Bankruptcy Court determined that the interest in
justice outweighed the interest in finality, id. at 636-37, and
accordingly amended the relevant text of the Approval Order
to read:

The Termination Fee, upon the terms and
conditions of the Merger Agreement, is approved
in part and disallowed in part. The Termination
Fee is disallowed in the event that the PUCT
declines to approve the transaction contemplated
in the Merger Agreement and, as a result, the
Merger Agreement is terminated, regardless of
whether the Debtors or NextEra subsequently
terminates the Merger Agreement. . . .

A.552. Finally, the court noted that “[n]othing in this Order
shall preclude NextEra from filing a request for allowance of
an administrative claim (on a ground other than the grounds on
which the Termination Fee was denied in the Opinion and this
Order) and any person’s right to object to any such request.”
A.553.

NextEra appealed the Bankruptcy Court decision to the
Third Circuit. The Third Circuit affirmed. In re Energy Future
Holdings Corp., 904 F.3d 298 (3d Cir. 2018) (“EFH I”).
Reviewing for an abuse of discretion, the Court upheld the
Bankruptcy Court’s decision. Id. at 308. Addressing the legal
relevance of the Bankruptcy Court’s misunderstanding, the
Court recounted that under In re O’Brien Envt’l Energy, Inc.,
181 F.3d 527, 532 (3d Cir. 1999), and In re Reliant Energy
Channelview LP, 594 F.3d 200, 207 (3d Cir. 2010),
termination fees may be allowed as administrative expense, see
11 U.S.C. § 503(b)(1)(A), to promote more competitive and

9
reliable bidding. See EFH I, 904 F.3d at 313-14. Nevertheless,
the determination of a conferred benefit is decided by the
totality of the circumstances. Id. at 314. Accordingly, while
the Merger Agreement’s Termination Fee conferred a benefit
by inducing the highest bid from NextEra, it was not designed
to produce a benefit to the competitive process. Id. at 314-15.
Furthermore, the Fee carried a perverse incentive that would
allow NextEra to avoid compromising on its positions and
force Debtors to terminate and still pay the Fee. Id. at 315.
Following this ruling, NextEra’s appeals for rehearing en banc
and a request for certiorari to the Supreme Court were both
denied. EFH I, 904 F.3d 298 (3d Cir. 2018), cert. denied sub
nom. NextEra Energy, Inc. v. Elliott Assocs., L.P., 139 S. Ct.
1620 (2019).

C. NextEra’s Application for Alternative
Administrative Expenses

While the appeal of the motion for reconsideration was
pending before the Third Circuit, in a separate effort to get paid
for its work on the Merger Agreement, NextEra filed with the
Bankruptcy Court an Expense Application under Section
503(b)(1)(A) of the Bankruptcy Code to “recover its out-of-
pocket expenses and other costs incurred in its efforts to
complete the transaction, obtain the requisite regulatory
approvals, and complete the acquisition of Debtors’ Oncor
assets from the time the Merger Agreement was executed until
the Debtors gave notice of termination.” A.583; A.562-63.

In response, Elliott and UMB Bank, as the indentured
trustee, filed a motion to dismiss or, in the alternative, a motion
for summary judgment to deny NextEra’s Expense
Application. The Bankruptcy Court held a hearing on the
Application, and then, subsequently, granted the motion to

10
dismiss. In re Energy Future Holdings Corp., 588 B.R. 371,
386 (Bankr. D. Del. 2018), aff’d sub nom. In re Energy Future
Holdings Corp., 2019 WL 4751568 (D. Del. Sept. 30, 2019).
In doing so, it first rejected NextEra’s proposed analogy to In
re Women First Healthcare, Inc., 332 B.R. 115, 121 (Bankr.
D. Del. 2005), in which administrative fees were awarded to
an ultimately unsuccessful bidder on a debtor’s assets. See
Energy Future Holdings, 588 B.R. at 385. The bidder in
Women First, noted the Bankruptcy Court, was “ready, willing,
and able to close the transaction,” but was frustrated in that
purpose by the debtor committing a tort—unlike NextEra,
which was “unable (due to lack of regulatory approval) to
consummate the transaction.” Id. (emphasis in original).
Further, in Women First, “there was a competitive bidding
process” that resulted in a higher bid; in the present case, “there
was no competitive bidding process and the Debtors eventually
closed a transaction with Sempra for substantially less value.”
Id. The Bankruptcy Court also rejected NextEra’s argument
that its efforts to close the merger served as a “roadmap” for
the Sempra deal, concluding that the relevant inquiry under
Section 503(b)(1)(A) is “limited to whether the estate
benefitted” by the actions taken, and because Debtors were
“forced . . . to find an alternative transaction at far less value
. . . there was no benefit to the estate.” Id. at 386.

The Bankruptcy Court also granted the motion for
summary judgment. Id. at 380-81. Its decision was premised
on language in the Merger Agreement which provided that
each party pays their own expenses, except for those fees that
are recounted in “specifically enumerated sections of the
Merger Agreement” or are administrative expenses addressed
in Debtors’ bankruptcy plan. Id. at 381. It concluded that, as
a matter of law, NextEra’s expenses fit into neither of those

11
categories, and thus the “Debtors never agreed to pay
NextEra’s expenses that related to obtaining regulatory
approval before the PUCT.” Id. It accordingly held that the
Agreement unambiguously barred the Expense Application.
Id. at 380.

The Delaware District Court, now informed by this
Court’s reconsideration ruling in EFH I, affirmed the
Bankruptcy Court’s decision. Energy Future Holdings, 2019
WL 4751568, at *4. Reviewing the Bankruptcy Court’s
dismissal de novo, the District Court held that NextEra failed
to benefit the estate under Section 503(b)(1)(A). Id. at *2-*3.
In doing so, it agreed with the Bankruptcy Court that Women
First was inapposite and balanced the benefit NextEra
maintained it provided by writing a “roadmap” for a successful
merger against its decision to pursue what ended up as
“fruitless appeals” in Texas court. Id. at *3. Additionally, the
District Court held that nothing in EFH I required that an
alternative reimbursement be approved. Id. at *4. The District
Court did not address whether the Merger Agreement barred
the recovery of NextEra’s claimed expenses. NextEra
appealed.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Court had initial jurisdiction over this
matter as it concerned the administration of the estate. 28
U.S.C. § 157(b). The District Court had jurisdiction to review
NextEra’s appeal under 28 U.S.C. § 158(a), and we have
jurisdiction to review that final decision under 28 U.S.C.
§ 158(d)(1). When the District Court sits as an appellate court
for the Bankruptcy Court, “our review duplicates that of the
district court and we view the bankruptcy court decision
unfettered by the district court’s determination.” In re Brown,

12
951 F.2d 564, 567 (3d Cir. 1991); see also In re Hechinger Inv.
Co. of Delaware, 298 F.3d 219, 224 (3d Cir. 2002) (“Our
review of the District Court’s decision effectively amounts to
review of the bankruptcy court’s opinion in the first
instance.”). We review the Bankruptcy Court’s “conclusions
of law, including its interpretation of the Bankruptcy Code” de
novo.1 In re Tribune Co., 972 F.3d 228, 237 (3d Cir. 2020).

1
The Bankruptcy Court analyzed these motions under
Federal Rules of Civil Procedure 12 and 56. There was some
debate during argument over whether Rule 12(b)(6) was the
proper rubric to evaluate Elliott and UMB’s joint filing in
opposition to the Expense Application. It was. Briefly, under
bankruptcy law, there are two different types of proceedings:
“contested proceedings” and “adversary proceedings.” See
Matter of TransAmerican Nat. Gas Corp., 978 F.2d 1409, 1416
(5th Cir. 1992) (distinguishing between adversary proceedings,
which are often akin to “full blown federal lawsuits within the
larger bankruptcy case[,]” and contested matters, which “are
generally designed for the adjudication of simple issues, often
on an expedited basis” (internal quotation marks and citation
omitted)). Adversary proceedings are governed by Bankruptcy
Rule of Procedure 7012, whereas contested matters are
generally governed by Bankruptcy Rule 9014. Regardless of
whether the proceeding at issue is an adversary or contested
matter, Rule 12(b)(6) applies here. Bankruptcy Rule 7012
explicitly incorporates Federal Rule 12(b)(6). Bankruptcy
Rule 9014(c) likewise gives the court “discretion to apply
Bankruptcy Rule 7012 [and thereby Federal Rule 12(b)(6)] to
a contested matter in the interest of judicial economy and the
preservation of estate resources.” The Bankruptcy Court
explicitly construed the motion as one made under Federal

13
 Because the Bankruptcy Court granted Elliot and
UMB’s motion to dismiss, and in the alternative, their motion
for summary judgment, both standards have application here—
albeit on different issues. To survive a motion to dismiss for
failure to state a claim, the Application must contain “sufficient
factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (internal quotation marks and citation omitted).
Conclusory statements and recitations of the law are
insufficient. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555 (2007). Generally, when deciding a motion to dismiss,
only the complaint can be considered. But, “a court may
properly look at public records, including judicial proceedings,
in addition to the allegations in the complaint.” S. Cross
Overseas Agencies, Inc. v. Wah Kwong Shipping Grp. Ltd., 181
F.3d 410, 426 (3d Cir. 1999).

A movant is entitled to summary judgment if it “shows
that there is no genuine dispute as to any material fact.” Fed.
R. Civ. P. 56(a). Genuine issues of material fact refer to any
reasonable disagreement over an outcome-determinative fact.
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Summary judgment on a matter of contract interpretation, as
was granted by the Bankruptcy Court in this case, is

Rule 12(b)(6) “made applicable to these proceedings pursuant
to Federal Rule of Bankruptcy Procedure 7012.” In re Energy
Future Holdings, 588 B.R. at 378 (emphasis added).
Accordingly, the appropriate standard here is that used to
evaluate a motion to dismiss. See In re Mullarkey, 536 F.3d
215, 220 (3d Cir. 2008) (providing that a motion to dismiss
pursuant to Bankruptcy Rule 7012 is governed by standard
plausibility requirements).

14
appropriate only if the contract is unambiguous, i.e., if it can
be reasonably read in only one way. Tigg Corp. v. Dow
Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987) (citing
Landtect Corp. v. State Mut. Life Assur. Co., 605 F.2d 75, 79
(3d Cir.1979)); see also JFE Steel Corp. v. ICI Americas, Inc.,
797 F. Supp. 2d 452, 469 (D. Del. 2011) (“If a contract is
unambiguous, the Court should interpret it as a matter of law,
making summary judgment potentially appropriate.” (citation
omitted)).

III. DISCUSSION

A. Potential Non-Statutory Grounds for Relief

Although NextEra filed its Expense Application
pursuant to a specific statutory provision, 11 U.S.C.
§ 503(b)(1)(A), the operation of which we shall discuss infra,
it also raises three alternative grounds for relief, apart from the
statutory text. First, it argues that, by denying its Application,
the District Court contravened a mandate issued by this Court
in EFH I. The District Court expressly rejected this argument.2
See Energy Future Holdings Corp., 2019 WL 4751568, at *4
(“The Third Circuit was not mandating that NextEra’s expense
application be allowed, nor was the Third Circuit concluding
that, if it were not, NextEra would be prejudiced.”). We join
in this rejection and adopt this reasoning. See id.

Second, NextEra argues that, after the Bankruptcy
Court invalidated the Termination Fee, the Debtors were
required by Section 9.13 of the Merger Agreement to negotiate
in good faith to devise an alternative arrangement that was

2
Because our opinion in EFH I had not been issued, the
Bankruptcy Court did not address this issue.

15
lawful and matched the original intent of the parties as closely
as possible.3 Third, NextEra argues that it is entitled to fees
under the Supreme Court’s fundamental fairness doctrine set
forth in Reading Co. v. Brown, 391 U.S. 471, 477-78 (1968)
(holding that tort judgments stemming from the negligent
actions of the bankruptcy receiver are entitled to priority as an
administrative expense, thereby creating a narrow exception to
the requirement that an applicant must show a benefit to the
estate in order to recover administrative fees); see also In re
Phila. Newspapers, LLC, 690 F.3d 161, 173 (3d Cir. 2012), as
corrected (Oct. 25, 2012) (“[F]airness may call for the
allowance of post-petition tort claims as administrative
expenses if those claims arise from actions related to the
preservation of a debtor’s estate despite having no discernable
benefit to the estate.”).4

3
Section 9.13 provides that, upon a determination that
any term or other provision in the Agreement is found invalid
or incapable of being enforced:

[T]he parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the
original intent of the parties hereto as closely as
possible in an acceptable manner to the end that
the transactions contemplated by this Agreement
are fulfilled to the extent possible.

SA.146. Pursuant to Section 9.1 of the Agreement, Section
9.13 survives the termination of the contract and is therefore
still in effect.
4
According to NextEra, it would be fundamentally

16
 Despite multiple opportunities to raise these arguments
in the Bankruptcy and District Court, NextEra raises both for
the first time on appeal.5 Consequently, neither the Bankruptcy

unfair if it could not recover for the expenses it incurred
seeking approval of the Merger, when it was relying in good
faith on the existence of a Termination Fee in the event Debtors
terminated the contract. Using the language of torts, on appeal
NextEra argues that “the Debtors’ inequitable, improper
conduct—whether seen as negligent misrepresentation,
malpractice, or a contractual breach—caused NextEra to suffer
massive losses pursuing the Merger’s consummation.”
Appellant’s Br. 39. Yet, NextEra’s Expense Application does
not cite to Reading, and neither the Application nor the briefing
to the Bankruptcy or the District Court mentions these
purported post-petition torts. In fact, the Bankruptcy Court
noted that “there are no allegations of ‘unique circumstances’
of a postpetition tort committed by the Debtors that would call
into play the fundamental fairness doctrine relied on in Women
First.” In re Energy Future Holdings, 588 B.R. at 386.
NextEra failed to challenge this decision in the District Court,
instead affirming that it was bringing a statutory claim, not a
Reading claim. Consistent with NextEra’s briefing, the
District Court made no mention of a fundamental fairness
argument at all.
5
The parties discussed Section 9.13 in their District
Court briefing only in the context of whether the Termination
Fee provision was severable from the rest of the Agreement,
and not in reference to the duty to re-negotiate. See Appellant’s
Br. at 48, Energy Future Holdings, 2019 WL 4751568 (2019)
(No. 1:18-cv-01253-RGA) (arguing that “if any of the
Agreement’s provisions are held invalid or unenforceable, the

17
Court nor the District Court addressed these grounds for relief.
We therefore decline to address these issues for the first time
on appeal and find both arguments waived. See E.E.O.C. v.
Kronos Inc., 694 F.3d 351, 370 (3d Cir. 2012) (“It is well
established that arguments not raised before the District Court
are waived on appeal.” (quoting DIRECTV Inc. v. Seijas, 508
F.3d 123, 125 n.1 (3d Cir. 2007))); Barefoot Architect, Inc. v.
Bunge, 632 F.3d 822, 835 (3d Cir. 2011) (“The waiver rule
serves two purposes: ensuring that the necessary evidentiary
development occurs in the trial court, and preventing surprise
to the parties when a case is decided on some basis on which
they have not presented argument.” (citing Hormel v.
Helvering, 312 U.S. 552, 556 (1941))).

B. NextEra’s Application for Section 503(b)(1)(A)
Expenses

We now turn to consideration of the ground for relief
that NextEra did properly raise in its Expense Application:

remainder of the Agreement remains in place only ‘so long as
the economic or legal substance of the transactions
contemplated by this Agreement is not affected in any manner
materially adverse to any party’”); Joint Brief of Appellees at
26 n.6, Energy Future Holdings, 2019 WL 4751568 (2019)
(No. 1:18-cv-01253-RGA) (arguing that “the severability
clause in Section 9.13 does not support NextEra’s argument
[because the] Bankruptcy Court did not render any provision
of the Merger Agreement invalid, illegal, or incapable of being
enforced”). Moreover, there is nothing in the record to show
why, despite almost two years passing since the EFH I
decision, NextEra never invoked this provision or exercised its
own duty to re-negotiate.

18
administrative expenses pursuant to Section 503(b)(1)(A) of
the Bankruptcy Code. But before delving into the statutory
requirements, there is one more issue of which we must
dispose—whether the Merger Agreement itself precludes
recovery of any administrative fees.

1. Section 6.7 of the Agreement’s Alleged Bar on Fees

Appellees argue that when NextEra entered into the
Merger Agreement, it bargained away, in Section 6.7, any
rights it may have had to recover general administrative fees.
The District Court did not address this argument. However,
the Bankruptcy Court granted summary judgment on this
ground as an alternative to the grant of motion to dismiss, In re
Future Holdings, 588 B.R. at 381, meaning we can properly
consider it, see In re G-I Holdings, Inc., 755 F.3d 195, 207 (3d
Cir. 2014). NextEra argued to the Bankruptcy Court that
Section 6.7 differentiates between expenses that qualify as
administrative expenses—which it contended were
recoverable—and those which do not qualify as administrative
expenses—which must be paid by the party that incurred them.
The Bankruptcy Court disagreed, reading the Merger
Agreement to unambiguously provide that the Debtors did not
agree to pay expenses incurred by NextEra in seeking
regulatory approval from the PUCT. In re Energy Future
Holdings, 588 B.R. at 380-81. Specifically, the Bankruptcy
Court held that the plain language of the Merger Agreement
precluded recovery of the expenses NextEra seeks, because
those expenses were neither specifically enumerated in the
Merger Agreement, nor “administrative expenses of the
Debtors” addressed in the Plan. Id. at 381. It found that the
Merger Agreement expressly provides that “all costs and
expenses incurred in connection with the Merger Agreement

19
shall be paid by the party incurring such expenses,” and
concluded that “NextEra can point to no contractual language
on which the court may impose liability.” Id.

As aforementioned, a grant of summary judgment on a
question of contact interpretation is appropriate where the
contract language in unambiguous. See Tigg Corp., 822 F.2d
at 361; see also JFE Steel Corp., 797 F. Supp. 2d. at 469
(explaining that where “the language of the contract is
unambiguous, the Court interprets the contract based on the
plain meaning of the language contained on the face of the
document.” (internal citations omitted)). The question then is
whether Section 6.7 unambiguously precludes, or allows for,
NextEra to recover administrative expenses. Starting with the
language of the Merger Agreement, Section 6.7 reads:

Except as otherwise provided in Section 6.3,
Section 6.18, Section 6.19, Section 6.20 and
Section 6.22 or any administrative expenses of
the Debtors’ estates addressed in the Plan of
Reorganization, whether or not the Merger is
consummated, all costs and expenses incurred in
connection with this Agreement and the Closing
Date Transactions and the other transactions
contemplated by this Agreement shall be paid by
the party incurring such expense.

A.132 (emphasis added). From the plain language of the
Agreement, there are two methods by which the Agreement
allows recovery of expenses: if they fall into an enumerated
section of the Agreement, or if they are “administrative
expenses of the Debtors’ estates addressed in the Plan of
Reorganization.” A.132 (emphasis added). NextEra does not
contend that any of the enumerated sections apply. Thus, only

20
the latter exception is at issue. The “Plan of Reorganization”6
refers to the Chapter 11 Bankruptcy Plan entered into by the
Debtors. Thus, we must turn to the Plan to determine what
administrative fees it addresses. The parties point to two
sections that concern administrative expenses. First, its
definitional section provides that an administrative claim is:

[A] Claim for costs and expenses of
administration of the Estates under sections
503(b) . . . including: (a) the actual and necessary
costs and expenses incurred after the Petition
Date through the Effective Date of preserving the
applicable Estates and operating the businesses
of the Debtors; [and] (b) Allowed Professional
Fee Claims. . . .”

A.198 (emphasis added). Part (a) makes clear that the parties
defined administrative claims identically to the Bankruptcy
Code, see 11 U.S.C. § 503(b)(1)(A), and imposed no additional
requirements beyond that the costs and expenses have been
“actual and necessary . . . [to] preserving the applicable Estates
and operating the businesses of the Debtors.” A.198.

Next, Article II of the Plan provides that:

[e]xcept as specified in this Article II, unless the
Holder of an Allowed General Administrative

6
Appellees argue that, at the outset, following the
termination of the Agreement, the Plan never became effective,
and “no administrative expenses were or could be paid
thereunder.” UMB’s Br. 52. But the language of Section 6.7
puts paid to that argument, in that it provides that the clause
survives “whether or not the Merger is consummated.” A.132.

21
 Claim7 and the Debtors or the Reorganized
Debtors, as applicable, agree to less favorable
treatment, each Holder of an Allowed General
Administrative Claim will receive, in full
satisfaction of its General Administrative Claim,
Cash equal to the amount of such Allowed
General Administrative Claim. . . .

A.199 (emphasis added). Here, again, the parties made clear
that administrative claims are defined only in accordance with
§ 503(b)(1)(A), which addresses “[a]llowance of
administrative expenses,” under the Bankruptcy Code. In
other words, an administrative claim is entitled to priority
payment under the Plan if it is “timely Filed by the applicable
Bar Date,” A.198, and allowed by the Bankruptcy Court as a
claim for “actual and necessary costs and expenses . . . [to]
preserving the applicable Estates and operating the businesses
of the Debtors.” A.198. See Phila. Newspapers, 690 F.3d at
172 (explaining that “‘allowed administrative expenses’
include those that satisfy the requirements of § 503(b)(1)(A)”).

The unambiguous meaning of Section 6.7, then, is that
except as specified in certain sections of the Merger
Agreement, “administrative expenses of the Debtors’ estates”
are allowed under “the Plan of Reorganization,” A.132, if
determined by the Bankruptcy Court to be expenses that were
“actual and necessary” to preserving the Debtors’ estates.

7
Neither party addresses what meaning, if any, the use
of the word “general” has in this definition. It appears,
however, to simply distinguish between “professional
compensation,” addressed in the next subsection, and all other
types of compensation. A.199-200.

22
A.198. Only costs that do not meet the requirements of
§ 503(b)(1)(A) or are not otherwise enumerated in the Merger
Agreement are barred by Section 6.7. Appellees’ argument
that NextEra waived its right to claim general administrative
expenses pursuant to § 503(b)(1)(A) is contrary to the plain
language of Section 6.7.

Tellingly, it is also contrary to the position consistently
taken by Elliott throughout the reconsideration proceedings.
Implicitly accepting those representations, the Bankruptcy
Court, in granting Elliott’s motion for reconsideration,
specified that “[n]othing in this Order shall preclude NextEra
from filing a request for allowance of an administrative claim”
to seek expense reimbursement. A.553. And in affirming that
order, we took as a given that NextEra’s request for
administrative expenses, which was pending in the Bankruptcy
Court at the time of argument, would serve as “an alternative
way to seek reimbursement for” the “significant amount of
money [it spent] in its attempt to obtain PUCT approval.” EFH
I, 904 F.3d at 316. We therefore reject Appellees’ waiver
argument and enforce the plain text of the Merger Agreement
and the Plan by reviewing whether NextEra’s claim is
allowable as a claim for actual and necessary costs and
expenses of preserving the Debtors’ estates.

2. NextEra Plausibly Alleged that it Benefitted the
Estate

Nevertheless, the Bankruptcy Court concluded, and the
District Court affirmed, in deciding the motion to dismiss that
even if NextEra could seek administrative expenses under the
Merger Agreement, it could not recover them under Section
503(b)(1)(A) of the Bankruptcy Code. The question thus
remains as to whether NextEra plausibly alleged in its Expense

23
Application that it could recover administrative fees under
Section 503(b)(1)(A) which provides in relevant part that:

(b) After notice and a hearing, there shall be
allowed, administrative expenses . . . including –
(1)(A) the actual, necessary costs and
expenses of preserving the estate. . . .

11 U.S.C § 503(b)(1)(A). This provision allows for the
collection of administrative expenses from a bankruptcy estate,
id., which “receive first priority in the distribution of the assets
of the debtor’s estate.” In re Hechinger Inv. Co. of Delaware,
298 F.3d 219, 224 (3d Cir. 2002). Section 503(b)(1)(A) “limits
recovery to those claims that are actual and necessary [to]
prevent[] the estate from being consumed by administrative
expenses[] and preserve[] the estate for the benefit of the
creditors.” In re Marcal Paper Mills, Inc., 650 F.3d 311, 315
(3d Cir. 2011).

An administrative expense claim is entitled to priority
under Section 503(b)(1)(A) if: (1) there was a “post-petition
transaction between the claimant and the estate,” and (2) those
expenses yielded a “benefit to the estate.” In re Women First,
332 B.R. at 121; see Goody’s Family Clothing, 610 F.3d 812,
818 (3d Cir. 2010) (citing In re Mammoth Mart, Inc., 536 F.2d
950, 954 (1st Cir. 1976)). The party seeking to recover
expenses must “carry the heavy burden of demonstrating” that
such expenses qualify as an administrative expense. Goody’s
Family Clothing, 610 F.3d at 818 (internal quotation marks and
citation omitted).

The first requirement is satisfied: the Merger
Agreement was a post-petition transaction. See Hechinger,
298 F.3d at 226 (defining post-petition transactions as

24
“services that are rendered after the commencement of the
[bankruptcy] case and that are needed for the purpose of
preserving the estate”) (internal quotation marks omitted);
O’Brien, 181 F.3d at 533 (“We assume that bidding at the sale
of O’Brien’s assets constitutes a transaction with the debtor-in-
possession for purposes of § 503(b)(1)(A).”).

The second requirement, that the claim applicant
provided a benefit to the estate, requires further elaboration,
and is the requirement over which the parties sharply disagree.
The word “benefit” does not itself appear in the text of Section
503(b)(1)(A). Instead, it functions as “merely a way of testing
whether a particular expense was truly ‘necessary’ to the
estate: If it was of no ‘benefit,’ it cannot have been ‘necessary’
within the meaning of § 503(b)(1)(A).” Matter of Whistler
Energy II, L.L.C., 931 F.3d 432, 443 (5th Cir. 2019) (internal
quotation marks and citation omitted). The benefit does not,
however, “have to be substantial” to qualify. In re Women
First, 332 B.R. at 121.

In O’Brien, we elucidated the concept of “benefit”
under Section 503(b)(1)(A) in describing a framework for
evaluating the possible beneficial acts that could justify a
termination fee, e.g., (1) “promot[ing] more competitive
bidding” by “induc[ing] an initial bid” or “inducing a bid that
otherwise would not have been made and without which
bidding would have been limited”; and, (2) “encourag[ing] a
prospective bidder to do the due diligence” to “research the
value of the debtor and convert that value to a dollar figure on
which other bidders can rely, . . . [which] increas[es] the
likelihood that the price at which the debtor is sold will reflect
its true worth.” O’Brien, 181 F.3d at 535, 537. This
articulation of what qualifies as a benefit under Section

25
503(b)(1)(A) is particularly apt where, as here, the claimant
seeks reimbursement for itemized expenses incurred precisely
because it “believed for roughly a year that it would be entitled
to payment of the Termination Fee,” EFH I, 904 F.3d at 316.

“Although the amount to be allowed as an
administrative expense must be measured in dollars and cents
. . . the question whether the estate has been benefited cannot
be so narrowly confined.” Matter of TransAmerican Nat. Gas
Corp., 978 F.2d 1409, 1420 (5th Cir. 1992). That is because
the concept of “necessary costs” in the 503(b)(1)(A) context is
broader than one of absolute requirement, and “less readily
calculable benefits, such as the ability to conduct business as
usual,” can qualify. Id. at 1416; see also Pennsylvania Dep’t
of Envt’l Res. v. Tri-State Clinical Labs., Inc., 178 F.3d 685,
689-90 (3d Cir. 1999) (providing that “usual and necessary
costs should include costs ordinarily incident to operation of a
business, and not be limited to costs without which
rehabilitation would be impossible”) (internal quotation marks
and citation omitted). The benefit analysis—a judicial gloss
on the underlying statutory concept of what is necessary—
must reflect this broader conception of necessity. See Matter
of H.L.S. Energy Co., Inc., 151 F.3d 434, 438 (5th Cir. 1998).

Nevertheless, the benefit must be actual, not
hypothetical. See In re Cont’l Airlines, Inc., 146 B.R. 520, 526
(Bankr. D. Del. 1992). This addresses the concern that
administrative claims deplete the bankruptcy estate’s assets;
thus, the benefit must be real in order for the claim to receive
priority. Id. The question is “not whether [the creditor]
deserves to get paid, but whether [it] deserves to get paid at the
expense of [the debtor’s] existing unsecured creditors.”
Whistler Energy, 931 F.3d at 441 (internal quotation marks and

26
citation omitted) (alteration in original). The focus is thus on
the “benefit to the estate, not the loss to the creditor.” Id. at
443. Thus, requested claims must be reasonable—as it is
“axiomatic that unreasonable expenses . . . would never be
necessary.” In re Express One Int’l, Inc., 217 B.R. 207, 211
(Bankr. E.D. Tex. 1998).

To ensure those expenses are reasonable, an analysis as
to whether a particular action benefitted an estate must weigh
the costs to the estate against the alleged benefits.8 See EFH I,
904 F.3d at 314 (noting that, when the Bankruptcy Court
initially decided whether to approve the Termination Fee, it
“failed to weigh” the “potential harm to the estates against the
potential benefits” because it did not realize the Termination

8
Under its traditional equitable powers, the Bankruptcy
Court is entitled to consider the equities to NextEra as part of
its balancing of the benefit and costs to the estate. See Pepper
v. Litton, 308 U.S. 295, 307-08 (1939) (explaining that “the
bankruptcy court in passing on allowance of claims sits as a
court of equity” and that “in the exercise of its equitable
jurisdiction the bankruptcy court has the power to sift the
circumstances surrounding any claim to see that injustice or
unfairness is not done in administration of the bankrupt
estate.”); In re Kaiser Aluminum Corp., 456 F.3d 328, 340 (3d
Cir. 2006) (“[T]he bankruptcy courts have broad authority to
act in a manner that will prevent injustice or unfairness in the
administration of bankruptcy estates.”). Specifically, the
Bankruptcy Court ought to consider in its balancing, the
fairness—or lack thereof—of NextEra being induced by the
assurance of a Termination Fee to make the substantial outlays
it did, only, when all was said and done, to lose out not only on
the deal but also on the Termination Fee.

27
Fee could be payable in the event PUCT approval was denied);
see also William L. Norton III, Norton Bankr. Law & Practice
§ 49:19 (3d ed. 2020) (“In general, judicial examination of any
claimed expense will consider whether the value of the estate
or the business was enhanced or protected by the expense;
whether the expense was an unavoidable cost of operating,
marshalling, or liquidating the estate; and whether the expense
was cost-effective in light of the circumstances.”) (emphasis
added) (citation omitted). As a result, to plead entitlement to
administrative fees, NextEra must plausibly allege that it
“provide[d] some benefit to the debtor’s estate.” O’Brien, 181
F.3d at 536.

a. Determining Benefit to the Estate9

9
At the outset, we reject Appellees’ contention that
NextEra is estopped from arguing that its actions in pursuing
PUCT approval benefitted the estate because this Court, in
EFH I, affirmed the determination that the Termination Fee did
not produce a benefit for the estate. For collateral estoppel to
apply, the “identical” issue must have been: (1) actually
litigated; (2) previously determined; and (3) necessary to the
previous judgment. See Raytech Corp. v. White, 54 F.3d 187,
190 (3d Cir. 1995). Prior to EFH I, the Bankruptcy Court was
tasked with determining whether the Termination Fee, if
correctly understood at the time it was approved, produced a
benefit to the estate under Section 503(b)(1)(A) (e.g., whether
the scope and existence of the fee when the parties entered the
contract was beneficial). See EFH I, 904 F.3d at 313-15; see
also In re Energy Future Holdings, 575 B.R. at 633-35. Here,
in contrast, the Bankruptcy Court was tasked with determining
if Appellants’ efforts taken to consummate the merger

28
 i. The Role of Hindsight

The Bankruptcy and District Courts held, as a matter of
law, that NextEra did not provide any benefit to the estate. In
re Energy Future Holdings, 588 B.R. at 386; Energy Future
Holdings, 2019 WL 4751568, at *3. NextEra argues that, in
doing so, the courts erroneously measured benefit using
hindsight, instead of measuring the benefit when the
expenditures occurred. We, however, see no error in this
aspect of the decision. In fact, in the primary case on which
Next Era relies, Women First, the court made its decision about
whether the claimant’s actions benefitted the estate with the
benefit of hindsight about the auction’s end results,
distinguishing between actions that turned out to be beneficial
(such as the expense applicant’s efforts to close a deal with the
debtors) and actions that turned out to be harmful (such as its
opposition to re-opening the auction, which delayed resolution
of the claim). See In re Women First, 332 B.R. at 122-23. And,
Women First is not alone in supporting the proposition that, in
accordance with the policy of limiting administrative expenses,

provided a benefit worthy of administrative expense
reimbursement wholly apart from any Termination Fee. As
discussed infra, this entails an analysis of whether NextEra’s
actions after signing the Agreement created a benefit (e.g.,
whether the steps NextEra took to secure PUCT approval were
beneficial). While both inquiries rely on O’Brien—because
O’Brien incorporated a benefit analysis into the determination
of whether a party is entitled to a break-up or termination fee—
the inquiries are separate and distinct. See O’Brien, 181 F.3d
at 536. Accordingly, the issues are not identical, and the
present issue was neither actually litigated nor previously
determined. See Raytech, 54 F.3d at 190.

29
a hindsight-based analysis of the benefit to the estate
requirement is appropriate. For example, in Goody’s Family
Clothing, we required a claimant landlord to “‘demonstrat[e]
that the [‘stub rent’] for which [they] seek[] payment provided
an actual benefit to the estate and that [incurring ‘stub rent’
was] necessary to preserve the value of the estate assets.’” 610
F.3d at 818 (emphasis added) (quoting O’Brien, 181 F.3d at
533).10 It is accordingly entirely appropriate to consider, as
viewed through the rearview mirror, whether the expenses of
NextEra provided an actual benefit to the estate.

ii. The Plausibility of NextEra’s Alleged Benefits

NextEra offers two main arguments to support its
assertion that it benefitted the bankruptcy estate. It asserts that
its bid encouraged later, higher bidders—in other words, that it
acted as a “stalking horse”—and also that it created a roadmap
that assisted in and sped up the approval of the Sempra merger.

We turn first to the “stalking horse” theory. A stalking
horse refers to an entity that is willing to place a bid on a
debtor’s asset in order to either set a baseline bid from which
the true value of the estate can be assessed or serve as a catalyst
to inspire other bidders. See In re Integrated Res., Inc., 135
B.R. 746, 750 (Bankr. S.D.N.Y.), aff’d, 147 B.R. 650
10
Although NextEra is correct that this Court, in EFH
I, “assess[ed the] propriety of termination fee as of the date of
Bankruptcy Court approval,” Appellant’s Br. 44, it was doing
so on a motion for reconsideration of approval of a contract
provision that it read as providing for a future administrative
expense provision rather than ruling on the actual application
for an administrative expense (like the current matter). See
EFH I, 904 F.3d at 313-16.

30
(S.D.N.Y. 1992); O’Brien, 181 F.3d at 537. NextEra points to
the Termination Fee—a common feature used to induce a
stalking horse—as evidence in support of this contention. See
In re Integrated Res., 135 B.R. at 750. Apart from the
Termination Fee, however, NextEra was not a prototypical
stalking horse. NextEra did not serve as a catalyst for other
bidders at the time of its bid; its bid was the sole offer. Id.
(defining a stalking horse as an entity that offers “an initial bid
that is then ‘shopped around’ to attract higher offers” (citation
omitted)). Moreover, Debtors later accepted a substantially
lower bid after the Merger Agreement fell through. See In re
AE Liquidation, Inc., 866 F.3d 515, 519 n.3 (3d Cir. 2017)
(stalking horse entity “enter[s] into an asset purchase
agreement with the debtor . . . prior to an auction” and
“establish[es] a competitive floor or minimum bid” (citation
omitted)). However, as NextEra notes, the later bid was for
Oncor with the undesirable ring fence intact, and was therefore
a bid on a different bag of goods. So we are left to compare
apples to oranges: the value of Oncor without the ring fence
(what NextEra bid on) to the value of Oncor with the ring fence
intact (what Sempra purchased).

Although NextEra did not, on this record, plausibly
allege that it “induce[d] an initial bid” or “promoted more
competitive bidding,” O’Brien, 181 F.3d at 535, 537, as a
stalking horse bidder which was outbid by higher bidders,11 it

11
We need not and do not decide the parameters of what
constitutes a stalking horse for the purposes of a claim for
administrative fees. We simply reject the rigid notion that a
stalking horse only provides a benefit to the estate where it
drives up the bidding price. That Debtors eventually accepted

31
has plausibly alleged that it performed “due diligence” in
pursuing PUCT approval of a sale without the ring fence
attached, “increasing the likelihood that the price at which the
debtor[’s asset] is sold will reflect its true worth.” Id.
Specifically, prior to NextEra taking the risk of bidding and
seeking approval without the ring fence, and its attempts to
appeal the denial, it appears from the Expense Application that
no bidders were willing to bid on Oncor with the ring fence in
place.12 After NextEra’s efforts to consummate the Merger
(and its showing that it could only occur with the Burdensome
Conditions intact), however, Debtors were able to find bidders
willing to accept a merger with the ring fence. It was
NextEra’s ultimately unsuccessful efforts towards
consummating the merger without the ring fence that provided
future bidders with the necessary information to place
informed bids, with the understanding that the ring fence
would remain. This is the same factual predicate as the
roadmap claim, discussed infra, and the same benefit to the

a lower dollar deal following the termination of the Merger
Agreement is not necessarily dispositive.
12
Prior to the NextEra Agreement, Debtors entered into
another agreement with a different company, the Hunt
Consortium, that also failed to achieve PUCT approval, and
Hunt eventually terminated. The record before us does not
reveal what, precisely, lead to its rejection, other than noting
that the PUCT order contained “certain required commitments
for Oncor and the Hunt Consortium” the parties were not
willing to make. A.71. Taking all inferences in NextEra’s
favor, it appears the Hunt Consortium was similarly unwilling
to take on Oncor unless certain restrictions were lifted, but was
unwilling to pursue their removal, as NextEra did.

32
estate. The theories are therefore not analytically distinct.
Since NextEra essentially alleges that it served as a stalking
horse by providing a roadmap for future bids, we will focus our
analysis on whether NextEra plausibly alleges a benefit under
the purported roadmap theory.

NextEra’s roadmap argument is that by negotiating the
Merger Agreement and Plan, and by settling objections with
creditors as well as by providing further due diligence, it
created guideposts that directly facilitated the Sempra merger.
This argument is predicated on the idea that, by going as far as
it did along the route to purchase the Debtors’ interest in Oncor,
NextEra provided the estate with valuable knowledge and
strategic documents that inured to the benefit of the Debtors in
the Sempra sale. In NextEra’s words, its “due diligence de-
risked the Sempra Transaction, demonstrated and expedited
the path to closing, and allowed Sempra to offer an improved
price.” Appellant’s Br. 46.

NextEra plausibly contends that its labor in drafting the
Merger Agreement and Plan (later relied upon in the Sempra
deal), settling with creditors objecting to the merger, and
proving to future bidders that Debtors’ interest in Oncor would
necessarily have the Burdensome Conditions attached saved
Debtors from reinventing the wheel even after the deal with
NextEra fell through. These arguments find support in the
record. Motions for Bankruptcy Court approval of subsequent
mergers reflect that “[l]earning from past successes and
obstacles . . . , the Debtors fought for a number of significant
concessions from [an intervening bidder in between NextEra
and Sempra], including . . . [the bidder’s] agreement to take the
ring fence ‘as is, where is.’” A.270. Sempra also agreed to
preserve key aspects of the ring fence to “mitigate the risk that

33
the PUCT will not approve the transactions.” A.307.
Additionally, the intervening bidder was “willing[] to largely
preserve the structure of the [NextEra] Plan (which simplified
the negotiation and documentation process),” A.278, and the
Sempra Merger Agreement, in turn, was “substantially
similar,” A.299, to the intervening bidder’s. In this same vein,
the intervening bidder “agreed to largely preserve the EFH
Committee Settlement,” “with essentially the same legal and
economic structure as the [NextEra] Plan,” to “mitigate[] Plan
confirmation risk.” A.284-85. Where the “record evidence”
indicates that Debtors reaped the benefits of NextEra’s PUCT
experience and its efforts to draft key documents, we cannot
agree with the Bankruptcy and District Courts’ decisions that
these costs were not plausibly “necessary to preserve the value
of [Debtors’] estate.” O’Brien, 181 F.3d at 536.

Here, NextEra’s claimed expenses related to its
services13 including, for example, “ongoing work on the
transaction itself, including work performed . . . on plan
confirmation and the confirmation hearing,” “fees for
confirmation-related discovery, work related to the

13
NextEra describes its services as “market valued at
$275 million.” Appellant’s Br. 23. This figure appears to refer
to the Termination Fee. However, as a general matter,
Termination Fees are meant to account for the risk associated
with mergers rather than be an accurate valuation of merger-
related services. See O’Brien, 181 F.3d at 533 (explaining that
in the context of non-bankruptcy mergers, Termination Fees
are used to compensate for risks a “white knight” bidder would
undertake by entering the bidding). Thus, the size of the
Termination Fee is not, absent more, an appropriate guide to
the value of the benefits to the estate.

34
confirmation hearing, and other work necessary to bring the
transaction to a close,” at a cost of $10,404,341. A.588. In
addition, it accounted for “work performed on the PUCT
approval process, including principally legal counsel, advisor
and expert work in connection with the PUCT application and
approval process,” listing the cost as $8,110,331. A.589.
Finally, it calculated the cost of “public outreach efforts to
promote the transaction and facilitate regulatory approval,
including PUCT approval” at $1,691,297. A.589-90. These
costs, while not an exclusive account of what may qualify as
administrative expenses, all would appear to relate to the cost
of obtaining information that may have later helped the
Debtors. At base, any award of administrative expenses for
benefits provided to the estate must be consistent with Section
503(b)(1)(A)’s mandate that NextEra can recover only for
those “actual and necessary costs and expenses of preserving
the estate,” 11 U.S.C. § 503(b)(1)(A).

But then comes another tricky question: how are these
benefits to be weighed against the alleged costs to the estate
attributable to NextEra, in order to determine if the overall
benefit was actual? The key principles underlying the benefit
analysis, discussed supra, are likewise relevant to this analysis,
namely that our consideration “cannot be so narrowly
construed” as to consider only expenses that can be “measured
in dollars and cents,” TransAmerican, 978 F.2d at 1420, but we
must nonetheless ensure that the costs for which NextEra seeks
to recover reflect a reasonable expense worthy of getting “paid
at the expense of [the debtor’s] existing unsecured creditors.”
Whistler Energy, 931 F.3d at 441 (internal quotation marks and
citation omitted); see also In re Express One, 217 B.R. at 211
(noting that “unreasonable expenses” cannot qualify as an
administrative expense).

35
 To this point, Appellees contend that, while NextEra
pursued allegedly “fruitless” appeals before PUCT and in
Texas state court, the estate incurred $50 million in interest
expenses per month, totaling, at a minimum, $250 million.
Elliott Br. 22, 29. The District Court agreed and held that any
benefit NextEra may have alleged outweighs the costs imposed
to the estate while it was pursuing these “fruitless” appeals.
Energy Future Holdings, 2019 WL 4751568, at *3. NextEra
disputes both premises of the District Court’s conclusions. As
to the calculation of interest, it argues that the $50 million a
month figure has no basis in fact. And more specifically, as
NextEra correctly points out, this calculation was not offset by
Oncor revenues Debtors received during the appeals period,
thus meaning it might not reflect any net loss. On the other
hand, it is not contested that the Debtors’ financial obligations
did compound at least to some degree during the time NextEra
was seeking the PUCT’s approval. Thus, it remains an
unsettled fact issue as to the net loss from interest expenses the
Estate incurred as a result of NextEra’s continued pursuing of
PUCT approval.

Turning to the supposed fruitlessness of the appeals,
NextEra first argues that the “Debtors fully endorsed every
argument that NextEra made in support of reversing the
PUCT.” Appellant’s Br. 50. NextEra is correct in this
assertion. It lends support to NextEra’s roadmap claim—that
the Debtors consented indicates that they, too, preferred a
merger without the ring fence, rather than with it. And this
may be probative evidence that the appeals were, in fact, not
fruitless, but instead were valid attempts to secure PUCT
approval supported by all involved parties. In such an instance,
the accumulated interest may more readily reflect what is
simply a necessary cost incident to doing business, making it,

36
in whole or at least in part, inappropriate to debit against
NextEra. Cf. Tri-State, 178 F.3d at 689-90.

NextEra next contends that the Merger Agreement
required NextEra to pursue the reconsideration motions and
appeal—and thus it would be wrong to consider the appeals
“fruitless.” Appellant’s Br. 50; A.124-25. The Agreement
does not, however, specifically require all appeals be pursued;
instead, it requires “reasonable best efforts” to obtain the
PUCT’s approval. A.124-25. However, it is a question of fact
that cannot be decided from the record before us as to whether
the appeals of the PUCT decisions fell within the “reasonable
best efforts” anticipated by the Merger Agreement. If it is
found that NextEra was in fact fulfilling contractual duties by
pursuing some or all of the appeals, this too may cut against
holding the interest costs against it. See In re Women First,
332 B.R. at 122-23 (distinguishing between beneficial and
harmful actions depending on the timing and impact on
resolution of the estate).14

IV. CONCLUSION

NextEra plausibly alleged that through a post-petition
14
NextEra’s argument that the PUCT ruling “lacked any
factual or legal basis” is neither here nor there in the present
instance, Appellant’s Br. 50, because federal courts do not sit
as courts of appeals for state court or agency judgments and
must grant preclusive effect to legally rendered decisions. See,
e.g., Univ. of Tenn. v. Elliott, 478 U.S. 788, 799 (1986)
(holding that when a state agency acts in a judicial capacity, its
factfinding is afforded the same preclusive effect as a state
court’s). Thus, this Court has no authority to question PUCT’s
decision.

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transaction, the Merger Agreement, it benefitted the estate by
providing valuable information, and accepting certain risks,
that paved the way for the later Sempra deal. The precise
monetary value of this benefit cannot be distilled from
pleadings alone. And likewise, the costs NextEra allegedly
imposed on the estate are equally uncertain. With respect to
the motion to dismiss the question before us is not whether
NextEra actually benefitted the estate, but whether it plausibly
alleged that it did so. Accepting the Expense Application as
true and taking all inferences in NextEra’s favor, it has
plausibly alleged that it is not foreclosed from receiving
administrative expenses under Section 503(b)(1)(A). With the
benefit of discovery, NextEra may (or may not) prove that the
actual benefit conferred on the estate outweighed the costs it
imposed, such that it is entitled to administrative fees. And as
to the motion for summary judgment, although NextEra and
the Debtors entered into an agreement that generally provided
each party would bear its own costs, the agreement exempted
from that general rule expenses addressed in the Plan of
Reorganization. In turn, the Plan unambiguously provides for
the recovery of administrative claims as defined by Section
503(b) of the Bankruptcy Code.

For the foregoing reasons, the orders of the Bankruptcy
and District Courts are reversed. This case is remanded to the
District Court so that the court may vacate its opinion affirming
the Bankruptcy Court and remand to the Bankruptcy Court for
further proceedings consistent with this opinion.

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