United States District Court, Southern District of New York
January 8, 2003
IN RE: ENRON POWER MARKETING, INC., DEBTOR. ENRON POWER MARKETING, INC., PLAINTIFF,
CITY OF SANTA CLARA, A CHARTERED CALIFORNIA MUNICIPAL CORPORATION D/B/A/ SILICON VALLEY POWER, DEFENDANT.
The opinion of the court was delivered by: Harold Baer, Jr., United States District Judge
OPINION & ORDER
The City of Santa Clara d/b/a/ Silicon Valley Power ("defendant" or "the City") moves both (1) to withdraw the reference of this adversary proceeding ("proceeding"), brought by Enron Power Marketing, Inc. ("plaintiff" or "Enron") in the Bankruptcy Court for the Southern District of New York, pursuant to 28 U.S.C. § 157(d); and (2) upon such withdrawal, to refer certain issues to the Federal Energy Regulatory Commission ("the FERC") for determination under the doctrine of primary jurisdiction. For reasons detailed more fully below, defendant's motion to withdraw the reference is denied, and I decline to exercise jurisdiction over defendant's motion to refer certain issues to the FERC.
On July 22, 2002, plaintiff commenced this action in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court") to recover post-petition debts owed by the City under a pre-petition agreement and subsequent individual agreements that were entered into for the purchase and sale of electrical power. Specifically, the Complaint alleges that the City breached the clear terms of the agreement by (1) failing to post margin as required under the agreement; (2) failing to pay plaintiff for power supplied by plaintiff to the City; (3) improperly suspending performance under the agreement; and (4) failing to pay plaintiff immediately an early termination payment in the amount of $146,261,529.50 due as a result of plaintiffs early termination of the agreement. The second, third, and fourth breaches occurred after plaintiff filed its petition for relief in Bankruptcy Court on December 2, 2001. The City moves to withdraw the reference to the Bankruptcy Court claiming that, in concert with 28 U.S.C. § 157(d), this Court, pursuant to the Federal Power Act ("FPA"), must forward the matter to the FERC. Alternatively, the City contends that the reference should be withdrawn because the adversary proceeding, according to defendant, is not a "core" proceeding and because the defendant is entitled to a jury trial as it would be in any other breach of contract action — something which the Bankruptcy Court cannot do in the absence of both parties' consent, which is not present here. Finally, the City urges the Court to refer certain issues to the FERC for resolution under the doctrine of primary jurisdiction.
On September 10, 1999, the parties entered into the agreement, under which they entered into a number of transactions to buy or sell electric power at a fixed price for a fixed time period. (Ward Decl. ¶ 2). The parties entered into a number of transactions following the execution of the agreement, which transactions were generally for a term of three months or less. Specifically, on August 29, 2000 and April 17, 2001, the parties entered into individual long-term transactions ("transactions"), under which plaintiff agreed to sell to the City, and the City agreed to pay for, energy delivered by plaintiff at a fixed price. Such transactions were memorialized by written confirmation letters which stated that "[t]he rates for services specified herein shall remain in effect for the term of this Confirmation Letter, and shall not be subject to change through the application of the Federal Energy Regulatory Commission pursuant to provisions of Section 205 and 206 of the Federal Power Act absent the agreement of all parties to this Confirmation Letter." (Id. ¶¶ 9, 10, Exs. B, C).
Section 4.1 of the agreement provides a list of "Events of Default." The parties agreed that if at any point during the term of the agreement, regardless of whether or not an event of default has occurred, the market price of electricity moved such that the early termination payment that would be owed to plaintiff was more than $15 million, then plaintiff could request that the City provide performance assurance — in other words, to post margin — in an amount equal to the early termination payment in excess of the $15 million. On the other hand, if at any point during the agreement the early termination payment that would be owed to the City was more than $20 million, then the City may request that plaintiff provide performance assurance in an amount equal to the early termination payment in excess of the $20 million. (Ward Decl. ¶ 8).
Between the time that the parties entered into the transactions and November 2001, the price of electricity dropped dramatically. Consequently, at the end of November 2001 and pursuant to the agreement, plaintiff determined that the City's net obligation to plaintiff as of November 26, 2001 was $94,176,291. (Ward Decl. ¶ 12). Accordingly, on November 27, 2001, plaintiff sent the City a letter requesting that the latter make a margin payment of $79,250,000 as required under the terms of the agreement. (Id.). This failure by the City to make the payment triggered an event of default under the agreement. (Id. ¶ 13).
Plaintiff filed for bankruptcy on December 2, 2001. Shortly after plaintiffs call for margin, the City triggered the second event of default when it suspended performance under the agreement. More precisely, by letter dated November 29, 2001, the City requested that plaintiff provide it with performance assurance in the form of a letter of credit in the amount of $31,750,000. (Id. ¶ 14). Then, on December 3, 2001, the City informed plaintiff that as of December 5, 2001, the City was suspending further performance under the agreement because plaintiff was in default of the agreement for failure to provide the City with the requested performance assurance. (Id.). Finally, on December 11, 2001, the City triggered yet another event of default when it informed plaintiff that the City would not be paying the monies it owed plaintiff — $1,010,439.50 for electricity purchases during the month of November 2001 — because it was applying a set off to a portion of the amount it conceded that it owed and was withholding the remaining amount owed as security against plaintiffs future payment obligations. Plaintiff points out that the agreement does not contain a provision that would permit the City to suspend performance or withhold payment. (Id. ¶ 16).
On December 21, 2001, plaintiff informed the City that it was in default under the agreement. (Id. ¶ 17, Ex. H). After the City failed to cure the defaults, plaintiff sent a letter to the City on December 28, 2001 informing it that plaintiff was terminating any outstanding transactions under the agreement and setting January 2, 2002 as the early termination date. (Id. ¶ 18). Nearly five months later, on May 30, 2002, plaintiff informed the City that, based on plaintiffs application of the early termination payment calculation formula described in section 4.3 of the agreement, and because the market price for energy had dropped between the date of the transactions and the early termination date, plaintiff was entitled to an early termination payment from the City the amount of at least $146,261,529.50. (Id. ¶ 19, Ex. J). The City has not yet provided plaintiff with an early termination payment, and for this reason plaintiff filed this adversary proceeding in the Bankruptcy Court on July 22, 2002. The Complaint asserts a claim for turnover of property under 11 U.S.C. § 542(b) and breach of contract, and seeks the immediate payment and turnover of the early termination payment. Plaintiff claims that this payment is property of its estate and critical to the administration and reorganization of the estate in bankruptcy. (Id. ¶ 20).
1. Standard Under Title 28 U.S.C. § 157
28 U.S.C. § 157 sets forth, inter alia, the circumstances under which a bankruptcy court may hear cases under Title 11 and any proceedings arising under Title 11. Specifically, that statute provides, in relevant part, that "[b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title." 28 U.S.C. § 157(b)(1). "Core proceedings" include, inter alia, "(A) matters concerning the administration of the estate; (B) allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under chapter 11, 12, or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11 . . . Id. § 157(b)(2)(A-B). Under subsection (c), a bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. That subsection states, in pertinent part, that "[i]n such proceedings, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." Id. § 157(c). Under subsection (d) of the statute, "[t]he district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." Id. § 157(d). Finally, under subsection (e), "[i]f the right to a jury trial applies in a proceeding that may be heard under this section by a bankruptcy judge, the bankruptcy judge may conduct the jury trial if specially designated to exercise such jurisdiction by the district court and with the express consent of all the parties." Id. § 157(e). Whereas this last section ratified the Second Circuit's holding in In re Ben Cooper, Inc. that bankruptcy judges could conduct jury trials in core matters, it also made clear that they could only do so with the express consent of all the parties. See 896 F.2d 1394, 1398 (2d Cir.), vacated and remanded, 498 U.S. 964 (1990), reinstated on remand, In re Ben Cooper. Inc., 924 F.2d 36 (2d Cir.), cert. denied, 500 U.S. 928 (1991). However, regardless of whether a proceeding is deemed core or non-core and, relatedly, whether a party is entitled to a jury trial, a judge sitting in, bankruptcy may still conduct pre-trial matters — especially if a district court concludes that the case is unlikely to reach trial, if the jury demand is without merit, or if the case will necessitate protracted discovery. See Keene Corp. v. Williams Bailey & Wesner. L.L.P., 182 B.R. 379, 384 (S.D.N.Y. 1995) (quoting In re Orion Pictures Corp, 4 F.3d 1095, 1101-02 (2d Cir. 1993)).
The City maintains that withdrawal of the reference to Bankruptcy Court in this case is necessary for the following reasons: (1) withdrawal is mandatory under subsection (d) of the statute; and (2) the reference may be withdrawn for a number of "cause[s] shown" under subsection (d). In addition, upon withdrawal from the Bankruptcy Court, the City requests that this Court refer issues to the FERC under the doctrine of primary jurisdiction.
2. Mandatory Withdrawal
It is well-settled that mandatory withdrawal pursuant to § 157(d) is narrowly applied, and is appropriate only when "substantial and material" conflicts might exist between non-bankruptcy federal laws and Title 11. See In re Keene, 182 B.R. at 382. Specifically, this provision of the statute has been interpreted to mandate withdrawal in situations where a bankruptcy judge would be called upon to interpret, rather than simply to apply, federal law apart from the bankruptcy statutes. See, e.g., City of New York v. Exxon Corp., 932 F.2d 1020, 1026 (2d Cir. 1991); see also In re Keene, 182 B.R. at 382 ("Withdrawal is also warranted when resolution of the matter would require the bankruptcy judge to `engage in significant interpretation, as opposed to simple application, ' of federal non-bankruptcy statutes") (citation omitted). Situations in which courts have found "substantial and material" issues of federal statutory interpretation include: (1) issues of first impression; (2) analyses of tariffs requiring something other than a rote application of existing precedent; and (3) the decision as to whether resort to administrative remedies is a prerequisite to commencing an action in court. See Int'l Assoc. of Machinists and Aerospace Workers, AFL-CIO v. Eastern Air Lines, Inc., 103 B.R. 416, 419 (S.D.N.Y. 1989), aff'd, 923 F.2d 26 (1991). In addition, mandatory withdrawal is "a fact specific determination, and thus necessarily involves analysis in light of the circumstances involved in each case." In re Keene, 182 B.R. at 382.
Defendant's main argument is that withdrawal is mandatory in cases where federal law is a "substantial and material consideration" in the resolution of a proceeding, and that such is the case here. Specifically, defendant maintains that this case involves more than a simple application of the FPA, that is, the federal act on which four of the its defenses are based. Those defenses include: (1) whether plaintiffs failure to give notice of termination to the FERC 60 days prior to termination violated a regulation promulgated under the FPA; (2) whether plaintiffs computation of the early termination payment violates the "lust and reasonable" as well as the "public interest" standards under the FPA; (3) the extent to which all, or any, of these questions must be referred to the FERC for resolution under the doctrine of primary jurisdiction. In other words, defendant urges that FPA issues are "intertwined" throughout this case, and that for this reason withdrawal from bankruptcy is mandatory and that referral to the FERC is necessary. "The questions of what rates, charges, terms and conditions of service are `just and reasonable' or "contrary to the public interest' are not questions for a court." (Def.'s memorandum at 6).
Plaintiff counters that withdrawal is by no means mandated in this particular situation for a number of reasons. As a preliminary matter, plaintiff points to the fact that courts in this Circuit have interpreted the mandatory withdrawal provision narrowly, for "if read literally, [it] would eviscerate much of the work of the bankruptcy courts." O'Connell v. Terranova, 112 B.R. 534, 536 (S.D.N.Y. 1990). It is plaintiffs contention that the Bankruptcy Court is the proper forum here because this case involves a relatively simple turnover and breach of contract action and that the Bankruptcy Court can resolve these issues by looking at the parties' agreement — rather than by considering, let alone "substantially" considering, certain provisions of the FPA. First, and more precisely, plaintiff argues that the FPA's notice provisions, codified at 18 C.F.R. § 35.15(a), do not even apply here because the notice statute applies only to power contracts entered into prior to July 9, 1996, and the agreement here was entered into well after that date, on September 10, 1999.*fn1 Second, plaintiff points out that the rates charged in the agreement have already been approved by the FERC when they were filed and are therefore presumed valid and enforceable. See, e.g., Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d Cir. 1994) ("a `filed rate' — that is, one approved by the governing regulatory agency — is per se reasonable and unassailable in judicial proceedings brought by [or against] rate payers"). Third and last, the two confirmation letters, dated August 29, 2000 and April 17, 2001, respectively, are clear and unambiguous on their face that the agreed upon rates "are not subject to change through the application to the Federal Energy Regulatory Commission pursuant to provisions . . ., of the Federal Power Act." (Ward Decl. Exs. B & C).
I agree with plaintiff that a mandatory withdrawal is not compelled in the instant case under § 157(d). As plaintiff points out, "this is a simple action for. . . breach of contract," one which "[t]he Bankruptcy Court can resolve . . . by analyzing and considering the clear and unambiguous language of the [agreement] itself and the facts in this case." (Pl.'s memorandum at 8). The complaint filed by plaintiff in Bankruptcy Court alleges just two causes of action, namely, a turnover cause of action brought under 11 U.S.C. § 542)(b) and a breach of contract cause of action that appears to be the exclusive province of state law. (See Ward Decl. Ex. K). Although defendant maintains that several of its defenses involve both the FPA and the FERC, I do not agree that the federal issues are substantial, let alone substantial issues of "first impression" that preclude resolution by a bankruptcy court judge. With respect to the defense based on the notice provisions under the FPA (see Hatcher Decl. ¶ 17, Seventh Defense), 18 C.F.R. § 35.15(e) is clear on its face that the 60-day pre-termination notice does not apply to contracts, like the agreement at issue here, entered into after July 9, 1996. Similarly, with respect to the defenses based on the ostensible unreasonableness of the terms and conditions of the agreement allegedly in violation of the §§ 205 & 206 of the FPA, (see id. ¶¶ 19-21, Eighth — Tenth Defenses), I do not find that interpretation — let alone substantial interpretation — of either the FPA or the FERC is necessary.*fn2 Quite the contrary, the attachments to the two confirmation letters expressly provide that the parties will neither apply to the FERC nor rely on the provisions of the FPA to challenge the rates specified in the agreement. In other words, the clear and unambiguous language of the letters indicate that the City waived its right to challenge the rates charged under the agreement. It is well-settled under New York law that courts will enforce unambiguous commercial agreements that are entered into between sophisticated parties. See Karabu v. Pension Ben. Guar. Corp., 1997 WL 759462, at *14 (S.D.N.Y. Dec. 10, 1997).(stating that "[w]here, as here, sophisticated parties negotiate at arm's length, the Court cannot and should not rewrite the contract — no matter how poorly drafted — to include language or rights that a party itself was unable to insert"). Because I agree with plaintiff that this is a relatively simple action for breach of contract that will not necessitate interpretation — let alone substantial interpretation of issues of first impression — t find that mandatory withdrawal is not warranted.
3. Discretionary Withdrawal
Defendant next contends that the proceeding should be withdrawn for cause, that is, regardless of whether or not the Court determines that it involves a core or non-core matter. Plaintiff maintains not only that this is a core proceeding, but also that defendant's entitlement to a jury trial, in and of itself, does not compel immediate withdrawal of the reference. While I disagree with plaintiff that this is a core proceeding, I do agree that this factor alone is not determinative with respect to whether or not reference to the Bankruptcy Court must be withdrawn.
Section 157(d) of the statute states, in relevant part, that "[t]he district court may withdraw . . . any case or proceeding referred [to the bankruptcy court] under this section . . . for cause shown." Id. The Second Circuit has identified a number of factors that courts should consider when determining whether withdrawal "for cause" exists under § 157(d), including: (1) whether the claim is core or non-core; (2) whether the claim is legal or equitable; (3) whether the claim is triable by a jury; (4) the most efficient use of judicial resources; (5) reduction of forum shopping; (6) conservation of estate and nondebtor resources; and (7) uniformity of bankruptcy administration. See Orion Pictures Corp. v. Showtime Networks, 4 F.3d 1095, 1101 (2d Cir. 1993). In In re Orion, the Second Circuit stated that the question of withdrawal depends on "considerations of efficiency, prevention of forum shopping, and uniformity in the administration of bankruptcy law." In re Orion, 4 F.3d at 1101. While the determination of whether withdrawal for cause is warranted turns partly on whether a proceeding is core or noncore, "it should be noted that [core/non-core] status is a mere factor and `a finding that a matter is core or non-core does not automatically determine jurisdiction for this action."' In re Keene, 182 B.R. at 383 (quoting In re Orion, 4 F.3d at 1101).
The In re Orion court outlined the two-step test that courts should apply in determining whether a reference should be withdrawn for cause. First, the court should consider whether a claim is core or non-core, "since it is upon this issue that questions of efficiency and uniformity will turn." In re Orion, 4 F.3d at 1101. Once a court has made a core/non-core determination, it must then proceed to "weigh questions of efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other related factors." Id. However, it is important to note that, even if a proceeding does not fall within the statute's definitional ambit of "core," under § 157(c) the bankruptcy court may still exercise non-core jurisdiction during the pre-trial phase if the proceeding "is clearly a matter which is "otherwise related' to the bankruptcy proceeding." In re Keene, 182 B.R. at 384 n. 3 (quoting § 157(c). As plaintiff correctly observes, courts have continued to make a core/non-core determination in accordance with the first step of the In re Orion analysis even with that edition of subsection (e). See, e.g., In re Keene, 182 B.R. at 383 (noting that the core/non-core status of a claim is one factor, among several, that courts should consider when deciding a motion for discretionary withdrawal); see also In re County Seat Stores, Inc., 2002 WL 141875, at *4 ("[t]he threshold inquiry is whether a claim is core or non-core because that determination can affect the remainder of the analysis"). Finally, and perhaps most important for the purpose of the motion before me, a district court is not compelled to withdraw a reference "simply because a party is entitled to a jury trial." As the court stated in In re Kenai, a non-core proceeding:
A rule that would require a district court to withdraw
a reference simply because a party is entitled to a
jury trial, regardless of how far along toward trial a
case may be, runs' counter to the policy favoring
judicial economy that underlies the statutory scheme
governing the relationship between the district courts
and bankruptcy courts. Although withdrawal is an
important component of this scheme, the court must
employ it judiciously in order to prevent it from
becoming just another litigation tactic for parties
eager to find a way out of bankruptcy court. 136 B.R. 59,
61 (S.D.N.Y. 1992).
In considering whether to withdraw a reference in a non-core proceeding from the beginning or whether a bankruptcy court should oversee pretrial matters and only later transfer the case to the district court for trial, courts should take into account the following three factors: "(1) whether the case is likely to reach trial; (2) whether protracted discovery with court oversight will be required; and (3) whether the bankruptcy court has familiarity with the issues presented." In re Times Circle East, Inc., 1995 WL 489551, at *3 (S.D.N.Y. Aug. 15, 1995). The party seeking to withdraw reference must demonstrate that withdrawal is in the interests of judicial economy and that it will be prejudiced by having the bankruptcy court oversee pretrial matters See e.g., id. at *3 (citing In re Gaston & Snow, 173 B.R. 302, 307 (S.D.N.Y. 1994)).
Here, defendant maintains that it is entitled to withdrawal for cause under § 157(d) on a number of grounds. First, defendant argues that the proceeding involves noncore issues, namely, breach of contract, that do not relate directly or even tangentially to plaintiffs bankruptcy proceeding. Specifically, defendant claims not only that the agreement was pre-petition and therefore antecedent to plaintiffs bankruptcy, but also that plaintiff is unable to demonstrate that its bankruptcy action even directly affects a core function. For instance, plaintiff argues that post-petition breaches of pre-petition contracts are core proceedings because they involve turnover actions and other claims against the estate that subject the parties to the Bankruptcy Court's equitable power. It is plaintiffs view that claims by a Chapter 11 debtor for post-petition breach of contract — as here — "are essential to the `administration of the estate' and, therefore, are core proceedings under 28 U.S.C. § 157(b)(2)(A)." (Pl.'s memorandum at 13 (quoting 28 U.S.C. § 157(b)(2)(A)). In addition, plaintiff also claims that defendant is seeking a setoff against plaintiffs estate as one of its affirmative defenses, specifically, defendant's contention that it failed to pay plaintiff a payment in the amount of $1,010,439 for delivery of electricity because it was `setting off' this amount against additional amounts that plaintiff allegedly owed defendant. (Def.' s memorandum at 10). Section 157(b)(2)(B) states that "allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under chapter 11, 12, or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11 . . . constitute core proceedings. Id. Defendant counters that plaintiff has not presented the Court with a turnover proceeding, that is, an action to collect" "a debt that is [indisputably] the property of the estate and that is matured, payable on demand, or payable on order," 11 U.S.C. § 542(b), but rather with an action that will require the Court to resolve in the first instance whether or not the claimed debt is even due. (Def.'s memorandum at 13). In addition, defendant submits that it has by no means commenced a core claims allowance proceeding against plaintiff because defendant has not asserted any setoff or counterclaim against plaintiff Put more simply, defendant denies that its non-payment of the November invoice was an event of default because, at the time of non-payment, there was a good faith dispute as to whether plaintiff was even owed anything under the agreement. (Def.'s reply memorandum at 6; Hatcher reply decl. at ¶¶ 22-26).
Second, defendant argues that, even if this Court did find that core issues were at stake, withdrawal is still necessary because defendant has requested a jury trial and such trials are not permitted in Bankruptcy Court, in core matters, without the consent of all parties under subsection (e) to the statute, which was added in 1994. In other words, defendant contends that withdrawal is imperative whether the proceeding is core or noncore: if it is core, then withdrawal is made necessary by the fact that defendant has not consented to a jury trial before the bankruptcy judge, as it must under § 157(e); if it is non-core, then a bankruptcy judge cannot try the case in front of a jury in the first place. As the Second Circuit stated in In re Orion, "[i]f a case is non-core and a jury demand has been filed, a district court might find that the inability of the bankruptcy court to hold a trial constitutes cause to withdraw the reference." In re Orion, 4 F.3d at 1101. Plaintiff counters that defendant's entitlement to a jury trial does not compel immediate withdrawal of the reference for the same reasons that the In re Keene court determined that immediate withdrawal is not favored in a situation where a case is unlikely to reach trial, if the Bankruptcy Court is already familiar with the proceeding, and/or it would be in the interests of judicial economy to keep the case in Bankruptcy Court for the purpose of pretrial oversight. See In re Keene, 182 B.R. at 385.
Third, defendant argues that the other factors outlined in In re Orion, namely, judicial efficiency and uniformity of bankruptcy administration, favor a withdrawal of reference at this time. Specifically, it is defendant's view that forcing bankruptcy judges to adjudicate non core proceedings — even if only while in their pre-trial phases — would represent a wasteful use of "`the time and resources of litigants and judges,' the shifting of cases between bankruptcy court and district court `that interrupts an ongoing proceeding."' (Def.'s memorandum at 16, quoting In re Grabill Corp., 967 F.2d 1152, 1159 (7th Cir. 1992) (Posner, J., dissenting). However, plaintiff counters that the law in this Circuit clearly suggests otherwise, and I agree.
i. Core/Non-Core Distinction in This Case
First, with respect to the core/non-core determination, plaintiff flatly denies that the issues involved in its adversary proceeding are non-core. As with the plaintiff in Keene, plaintiff here claims that because the adversary proceeding is central to the administration of the estate, and will therefore have a great impact on the estate, the proceeding should be deemed core. However, the In re Keene court rejected an identical argument, finding that
[a]lthough a literal reading of § 157(b)(3) seems
to encompass all matters in which the Debtor is
involved, courts have construed the section in light
of the statute as a whole and have concluded that such
a broad reading would be improper. See Ben Cooper,
Inc. v. The Insurance Co. of the State of Pennsylvania
(In re Ben Cooper), 896 F.2d 1394, 1398 (2d Cir.
1990). ("Matters that concern the administration of
the bankrupt estate tangentially are related, non-core
proceedings.") Moreover, in In re Orion, the Second
Circuit expressly rejected such a sweeping
interpretation, reasoning that it would render any
pre-petition action for damages brought by the debtor
as being at the "heart" of its administration due to
the possibility of a sum of money being awarded to the
estate. 182 B.R. at 383-84.
Plaintiff cites a line of cases in which the courts have held that a post-petition breach of a pre-petition contract raises issues that fall within the definitional contours of a "core" proceeding. For instance, in In re Seatrain Lines. Inc., this Court stated that "[c]ourts in this circuit have held that post-petition causes of action give rise to core proceedings," and found that because the contracts at issue in that case (insurance policies) were executed pre-petition and the estate's cause of action accrued post-petition (when the defendants refused the estate's demand for defense and indemnification) it could properly be deemed a "core" proceeding under § 157(b)(2)(A). See 198 B.R. 45, 51 (S.D.N.Y. 1996); see also In re Century Brass Prods., Inc., 1992 WL 22191, at *2-3 (D. Conn. 1992) (post-petition claim under pre-petition contract "concerns the administration of the estate and is a "core" proceeding pursuant to § 157(b)(2)(A)"). Here, plaintiff argues that it has raised core issues within the meaning of § 157 because at least three of the events triggering its breach of contract action occurred after the petition was filed — in other words, its complaint is grounded in post-petition claims arising from a pre-petition contract. More precisely, plaintiff filed for bankruptcy protection on December 2, 2001. On December 3, 2001, defendant informed plaintiff that as of December 5, 2001, it was suspending any further performance under the agreement. Further, by letter dated December 11, 2001, defendant informed plaintiff that although it owed plaintiff $1,010,439 for electricity during the month of November 2001, it was refusing to pay. Finally, although plaintiff informed defendant by letter dated May 30, 2002 that plaintiff was entitled to an early termination payment in the amount of at least $146,261 529, defendant has failed to provide the early termination payment as required under the agreement.
I disagree with plaintiff that defendant's alleged breaches raise core issues under § 157. Plaintiff attempts to marshal case law — e.g., In re Seatrain — in support of its contention that issues relating to post-petition breaches of pre-petition contracts are invariably considered core under § 157. However, the cases relied on by plaintiff each involved reasoning that was explicitly rejected by the Second Circuit in In re Orion as well as by subsequent courts in this Circuit. For instance, in In re McMahon, this Court openly criticized In re Seatrain for "misapprehending" In re Orion, insofar as that case did involve a post-petition breach of a pre-petition contract. See In re McMahon, 222 B.R. 205, 208 (S.D.N.Y. 1998). Indeed, as the In re Orion court asserted, "[t]o hold [a] claim to be core merely because it is a matter "concerning the administration of the estate, ' creates an exception `that would swallow the rule' as any contract claim would "concerns the administration of the estate." In re McMahon, 222 B.R. at 208 (quoting In re Orion, 4 F.3d at 1102)). Because I find that plaintiffs causes of action are essentially contract claims dressed up as bankruptcy claims, they must be considered "non-core" for the purpose of the present motion to withdraw the reference from Bankruptcy Court.
ii. Other Considerations in This Case
My inquiry with respect to discretionary withdrawal, however, does not end with a determination that this is a non-core proceeding. Rather, I must also consider. other factors, such as the most efficient use of judicial resources, the uniformity of the administration of the bankruptcy laws, and delay and costs to jhe parties. Here, I find that the evidence weighs overwhelmingly in plaintiffs favor. On December 20, 2002, plaintiff submitted a supplemental declaration in which it informed this Court that "there are twelve adversary proceedings of which we are aware, not including the instant case, pending in the United States Bankruptcy Court for the Southern District of New York . . . before the Honorable Arthur J. Gonzalez, involving Enron Corporation and/or its affiliates." (Polkes' Decl. ¶ 2). Plaintiff and/or its affiliates filed the respective complaints in these proceedings between June 5, 2002 and December 10, 2002. (Id.). As evidenced by the complaints that are appended to the declaration, all of these cases involve master agreements for the purchase and sale of a commodity; while the commodity itself varies — electrical power, natural gas, coal, crude oil — the agreements and their underlying provisions are similar in scope. Specifically, the cases all involve a defendant, like the one here, that has allegedly breached a master agreement by failing to pay plaintiff and/or its affiliates certain termination payments. As such, each case involves the interpretation of key provisions of the master agreement, including the provisions governing events of default, early termination, suspension of performance and/or calculation and payment of a termination payment — provisions that are all at issue in this case. (Id. ¶ 3). Clearly, then, because Judge Gonzalez is dealing with a number of cases involving analogous claims and issues, the most efficient use of judicial resources would be to keep this case before Judge Gonzalez in the Bankruptcy Court, at least for pre-trial discovery purposes.
It must be noted that my decision in this case need not and does not rest on the core/non-core distinction or even on the fact that defendant is entitled to a jury trial. As discussed above, the core/non-core distinction at least for the present purposes is a distinction without a difference: if I found the issues to be non-core, which I do, the Bankruptcy Court could still exercise non-core, pretrial jurisdiction under § 157(c) because the proceeding "`is clearly a matter which is `otherwise related' to the bankruptcy proceeding." In re Keene, 182 B.R. at 384 n. 3 (quoting § 157(c)). Although In re Keene involved non-core issues, Judge Duffy nevertheless denied defendant's motion to withdraw the reference at that time on the ground that "[t]he bankruptcy judge may adjudicate pretrial matters not requiring the `final order or judgment' reserved to the district court under § 157(c)(1)." Id. at 385. Even if defendant is entitled to a jury trial, withdrawal may take place at a later date — thereby allowing the bankruptcy judge supervision over and management of pretrial matters. As Judge Wood stated in In re Kenai, "[a] rule that would require a district court to withdraw a reference simply because a party is entitled to a jury trial, regardless of how far along toward trial a case may be, runs counter to the policy favoring judicial economy that underlies the statutory scheme governing the relationship between the district courts and bankruptcy courts." 136 B.R. at 61.
Of the three pertinent factors that courts typically consider when weighing whether to withdraw a reference — is the case likely to reach trial, will protracted discovery with court oversight be required, and does the bankruptcy court have greater familiarity with the issues presented — I find that all three fall on plaintiffs side of the scale. Here, the proceeding is only at a preliminary stage and might very well be resolved by dispositive motions. Further, given the nature of the claims and affirmative defenses, there will likely be a large amount of discovery necessitating significant court oversight. Finally, and most importantly, Judge Gonzalez, who is presiding over twelve other cases brought by plaintiff and/or one of its affiliates and all of which involve similar issues, is familiar with the salient issues in all the cases and is far more able to supervise all of them together, unless and until a jury trial is necessary.
4. Referral to the FERC
In denying defendant's motion to withdraw the reference, this case remains entirely within the subject matter of the Bankruptcy Court and I am divested of jurisdiction to rule on defendant's request for referral to FERC under the doctrine of primary jurisdiction. See. e.g., In re Kashani, 190 B.R. 875, 884 (9th Cir. 1995) ("unless the district court withdraws the reference, in whole or in part pursuant to 28 U.S.C. § 157(d), the case is within the subject matter jurisdiction of the bankruptcy court"); In re Burger Boys, Inc., 94 F.3d 755, 762 (2nd Cir. 1996) (district court could not decide factual issues without withdrawing the reference).
For the foregoing reasons, defendant's motion to withdraw the reference from Bankruptcy Court before Judge Gonzalez to this Court under 28 U.S.C. § 157 is denied, and, for this reason, I decline to exercise jurisdiction over defendant's motion to refer certain issues to the FERC. The clerk of the court is instructed to remove this case and any open motions from my docket.