Governor's Approval Memorandum Ch. 519 (emphasis added).
The Court is cognizant of the statutory rule of construction that a legislature is presumed to have knowledge of other laws in effect and of relevant case law when amending a statute. See New York Statutes § 191 (citations omitted). NIMO, presumably relying on such a rule of construction, argues that the New York Court of Appeals' Con Edison decision, when read with the express statutory language of PSL § 66-c(2), leads to the conclusion that a cogenerator must have a contract executed prior to June 26, 1992 and have met federal QF standards prior to that date in order to be grandfathered from the repeal of the 6 [cents] Law.
The Court cannot agree with NIMO's conclusion. The grandfathering provision intended to preserve any rights that had accrued prior to June 26, 1992. The right to payments pursuant to the 6 [cents] Law accrued if a facility was "developed on or after June twenty-six, nineteen hundred, eighty..." PSL § 66-c(1) (repealed 1992). The Con Edison decision determined that a facility which did not meet federal QF standards was not currently entitled to 6 [cents] payments, not that it was never entitled to those payments. Construing the Con Edison decision within the state and federal statutory framework, the Court concludes that the Court of Appeals' decision merely suspended 6 [cents] payments during a period of federal QF noncompliance but did not revoke a right which had already accrued. Thus, the Con Edison decision cannot be construed as a judicially created addition to PSL § 66-c(2).
As Debtor did not meet federal QF standards for calendar years 1991-1994, its entitlement to 6 [cents] payments was suspended and the appropriate rates for those years will be determined by FERC. See Megan-Racine Associates, Inc., supra, 73 F.E.R.C. P61,308 (requiring Debtor to show cause why FERC should not find that it was a public utility within the FPA). However, because the January 19 FERC order recertified Debtor as a federal QF for 1995 and thereafter, see In re Megan-Racine Associates, Inc., supra, 74 F.E.R.C. P61,032, Debtor is entitled to the escrowed surplus amount and prospective 6 [cents] payments subject to the disposition of the adversary proceeding. Therefore, NIMO's termination motion is denied.
NIMO's motion to pay into the Court registry the surplus amount pursuant to Code §§ 363(e) and 105(a) is also denied. NIMO has failed to establish the validity priority or extent of its interest as required by Code § 363(o). As the Court noted in its Escrow Decision, "NIMO's interest in the alleged overpayments is contingent on a factual finding that Debtor was not a QF prior to 1992. NIMO's interest is also contingent on a finding that Debtor was not entitled to be grandfathered from the repeal of the 6 [cents] rate." Escrow Decision at 10-17 (emphasis added).
The Court must now determine whether NIMO, by unilaterally escrowing the surplus amount on or about December 22, 1995 and presumably on January 25, 1996, violated the automatic stay imposed by Code § 362(a). NIMO argues that under the Supreme Court's recent decision, Citizens Bank of Maryland v. Strumpf, U.S. , 116 S. Ct. 286, 133 L. Ed. 2d 258 (1995), its conduct did not violate the terms of Code § 362(a)(3).
In Strumpf, the debtor maintained a checking account with Citizens Bank of Maryland. Id. at 288. The debtor was also in default of a loan from the bank with an outstanding balance of $ 5,068.75. Id. After the debtor filed for relief under Chapter 13 of the Bankruptcy Code, Citizens Bank of Maryland placed an administrative freeze on the debtor's checking account. Id. Thereafter, the bank filed a "Motion for Relief from Automatic Stay and for Setoff." Id.
The narrow issue confronting the Supreme Court was "...whether the creditor of a debtor in bankruptcy may, in order to protect its setoff rights, temporarily withhold payment of a debt..." Id. (emphasis added). The court held that the administrative freeze of the debtor's account did not violate Code § 362(a)(7). The Court reasoned that denying the bank the right to place an administrative hold on the checking account would eviscerate exercise of the bank's right to setoff expressly preserved by Code §§ 542(b) and 553. Such an interpretation of the Bankruptcy Code was impermissible as, "it is an elementary rule of construction that 'the act cannot be held to destroy itself.'" Id. at 290 (quoting Texas & Pacific R.Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 446 27 S. Ct. 350, 358, 51 L. Ed. 553 (1907)).
The court also held that the temporary administrative freeze did not violate Code §§ 362(a)(3) and (a)(6).
The Court stated that the debtor's reliance on these statutory provisions was misplaced because of the "false premise that [bank's] administrative hold took something from the [debtor], or exercised dominion over property that belonged to [debtor]." Id. The court reasoned that the relationship between bank and depositor is essentially founded upon contract and, as such, the temporary freeze amounted to merely a refusal to honor a contractual promise. Id. (citing Bank of Marin v. England, 385 U.S. 99, 101, 87 S. Ct. 274, 276, 17 L. Ed. 2d 197 (1966) ("The relationship of bank and depositor is that of debtor and creditor, founded upon contract.")). The court then relied on its trump card and stated that, "In any event, we will not give §§ 362(a)(3) or (6) an interpretation that would proscribe what § 542(b)'s 'exception' and § 553(a)'s general rule were intended to permit..." Id. (emphasis added).
It is a fundamental axiom of bankruptcy law that the automatic stay is pervasive and exemptions from the stay are strictly construed. The logic of the foregoing compels a narrow reading of Strumpf. In addition, the language of the decision itself dictates that its holding is limited to the so called "banker's dilemma" of preserving a creditor's set off rights.
NIMO's reliance on Strumpf is misplaced because NIMO, unlike the Citizens Bank of Maryland, is not seeking to preserve the set off rights provided by Code §§ 542(b) and 553. NIMO expressly states that it "does not base its claim to the escrowed funds on some other offsetting obligation that MRA [Debtor] owes to Niagara Mohawk, but on MRA's complete lack of entitlement." Memorandum of NIMO on Citizens Bank of Maryland v. Strumpf at 6. Another distinguishing fact is that the debtor in Strumpf did not dispute its obligation to the bank. In contrast, the parties in the matter sub judice vigorously dispute what their mutual obligations are under the PPA.
NIMO essentially argues that the Strumpf court recognized that the relationship between a bank and depositor is predicated on a contract. As such, the Supreme Court determined that the bank's administrative freeze was merely "a refusal to perform its promise" under the contract and was neither a taking of possession of the debtor's property nor an exercise of control over it. NIMO argues that escrowing the surplus amount was also, at most, a temporary refusal to perform a contractual promise.
NIMO glosses over the fact that unlike in Strumpf, the contract in this case is an executory contract as both Debtor and NIMO have significant, unperformed obligations remaining under the PPA. See Hotel Syracuse, Inc. vs. City of Syracuse Indus. Dev. Agency, 155 Bankr. 824, 843 (Bankr. N.D.N.Y. 1993) ("To be considered executory, the performance remaining due [on both sides] must be significant."). This Court follows the long line of cases adopting the so-called "inclusionary doctrine" and concludes that an executory contract is property of the estate upon the filing of the petition.
See In re Kings Falls Power Corp., 185 Bankr. 431, 438 (Bankr. N.D.N.Y. 1995) (creditor erroneously concluded that unassumed contract did not constitute property of the estate); In re Albion Disposal, Inc., 152 Bankr. 794, 806-808 (Bankr. W.D.N.Y. 1993); Alert Holdings, Inc. v. Interstate Protective Services, Inc., 148 Bankr. 194, 203 (Bankr. S.D.N.Y. 1992) ("an executory contract is property of the estate"); In re Computer Communications, 824 F.2d 725 (9th Cir. 1987)
; Westbrook, A Functional Analysis of Executory Contracts, 74 Minn.L.Rev. 227, 324-325 (1989); 2 W. Norton, Norton Bankruptcy Law and Practice 2d, § 39:8, 39-32 ("The better view is that executory contracts and unexpired leases become property of the estate.").
As noted above, the scope of Code § 362 is broadly construed. "All proceedings are stayed, including arbitration, license revocation, administrative and judicial proceedings. Proceeding in this sense encompasses civil actions as well, and all proceedings even if they are not before governmental tribunals." H.R.Rep. No. 595, 95th Cong., 2d Sess. 340 (1978), U.S.Code Cong. & Admin.News 5963, 6297. In addition, the Second Circuit has noted that, "Nothing in the Code suggests that a party is entitled to engage in 'self-help' in derogation of the automatic stay." In re Fugazy Exp., Inc., 982 F.2d 769, 776 (2d Cir. 1992) (citing In re Computer Communications, Inc., supra, 824 F.2d 725).
In the case at bar, NIMO unilaterally determined that Debtor was not entitled to prospective 6 [cents] payments pursuant to PSL § 66-c which is incorporated by reference in the PPA. See supra note 7. NIMO engaged in self-help by escrowing the surplus amount and, thereafter, came to this Court for pro hac justification. Although Congress expressly exempted certain actions from the automatic stay, none of the exceptions can be interpreted to embrace unilateral actions that affect executory contracts governed by the provisions of Code § 365. See Matter of Pester Refining Co., 58 Bankr. 189, 191-192 (Bankr. S.D.Iowa 1985) (creditor was barred by Code § 362(a) from enforcing a contractual provision of unassumed executory contract) (citing N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 531, 104 S. Ct. 1188, 1199, 79 L. Ed. 2d 482 (1984)); In re Computer Communications, Inc., supra, 824 F.2d at 728-731 (holding that even if executory contract was terminable under Code § 365(e)(2), Code § 362(a)(3) automatically stayed termination). This is particularly true where, as in this case, a debtor's executory contract is its primary asset. The Court concludes that NIMO's actions impacted upon property of the estate, namely, the PPA, and were therefore in derogation of Code § 362(a)(3).
The law in this Circuit is clear that sanctions for violations of the automatic stay pursuant to Code § 362(h) are only appropriate as to debtors who are natural persons. See In re Chateaugay Corp., 920 F.2d 183, 186-187 (2d Cir. 1990). "For other debtors, contempt proceedings are the proper means of compensation and punishment for willful violations of the automatic stay." Id. at 187. Thus, where the debtor is a corporation, as in the instant case, sanctions can be imposed only on a showing of maliciousness or lack of a good faith argument and belief that the party's actions were not in violation of the stay. See In re Crysen/Montenay Energy Co., 902 F.2d 1098, 1104 (2d Cir. 1990). Although NIMO should have sought relief from the stay pursuant to Code § 362(d) or (f) prior to unilaterally escrowing the surplus amount, the applicability of the automatic stay was sufficiently unsettled following the Supreme Court's decision in Strumpf that the Court declines, in its discretion, to impose sanctions against NIMO.
Accordingly, it is hereby
ORDERED that NIMO's motion made pursuant to Code § 362(d), or alternatively, Fed.R.Civ.P. 60(b)(3), (5) and (6) to terminate 6 [cents] payments is denied; it is further
ORDERED that NIMO's motion made pursuant to Code §§ 363(e) and 105(a) to pay into the registry of the Court the surplus amount is denied; it is further
ORDERED that NIMO turnover to Debtor all escrowed funds, interest and fees as prescribed by the PPA within ten (10) days of entry of this Order; it is further
ORDERED that sanctions will not be imposed on NIMO for its violation of the automatic stay.
Dated at Utica, New York
this 2nd day of Feb, 1996
STEPHEN D. GERLING
Chief U.S. Bankruptcy Judge