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IN RE ENRON CORPORATION

April 2, 2004.

In re ENRON CORP., et al., Debtors, Chapter 11,; THE CONNECTICUT RESOURCES RECOVERY AUTHORITY, Appellant,
v.
ENRON CORP., et al., Appellees



The opinion of the court was delivered by: BARBARA JONES, District Judge

OPINION

Appellant, the Connecticut Resources Recovery Authority ([FNW] CRRA"), appeals from a decision of the Bankruptcy Court dismissing Appellant's Complaint and denying Appellant's request to amend its Complaint. For the reasons set forth below, the Bankruptcy Court's decision is AFFIRMED in its entirety.

BACKGROUND

  Appellant is a non-profit, quasi-public, Connecticut state agency, which manages the infrastructure for the disposal of municipal solid waste in the state of Connecticut. In 1985, CRRA entered into an agreement with Connecticut Light & Power ("CL&P") — the details of which Page 2 are unnecessary to recount here — under which CL&P was obligated to purchase steam from CRRA at the above market rate of 8.5C per kilowatt-hour ("kWh"). In 1998, CL&P began negotiations with CRRA to inter alia "buy-down" their above market contracts. These negotiations resulted in a tentative agreement pursuant to which CL&P agreed to pay CRRA a lump sum of approximately $290 million in order to buy-down the 8.5C kWh rate. The lump sum appears to have been further negotiated to approximately $280 million. Of the $280 million, $60 million was used to purchase some property and perform environmental work.

  In an attempt to earn an adequate return on the remaining $220 million lump sum payment to replace its previous stream of income from CL&P, CRRA entered into negotiations with Enron Power Marketing, Inc. ("EPMI"), an entity affiliated with Enron Corp. ("Enron" and collectively "Debtors" or "Appellees") to create an investment strategy that would not run afoul of statutory investment prescriptions to which CRRA was subject. This investment strategy and the resulting series of agreements that were entered into by CRRA, CL&P, and EPMI during the year 2000 ("the 2000 Agreements") can be described as follows. Page 3

  CRRA agreed to release CL&P from its 8.5C kWh contract through the implementation of a series of contracts whereby CRRA agreed to sell power to EPMI, and EPMI agreed to sell power to CL&P. lender these agreements, CL&P paid $220 million to EPMI in exchange for power over a twelve-year period, at the reduced price of 3.0* — 3.3C kWh of electricity. EPMI agreed to make payments to CRRA over the course of twelve years, in twice-monthly installments totaling approximately $ 2.375 million each month.

  CRRA alleges that although EPMI was brought into the negotiations as an ostensible third-party to the restructuring transactions, in reality, EPMI served as nothing more than an investment vehicle for CRRA. According to CRRA, EPMI's role was to accept $220 million of the eventual $280 million buy-down payment from CL&P to CRRA, and then pay that money back to CRRA in installments over a 12-year period, at the rate of $2.375 million a month. CRRA alleges that while the appearance was that of a legitimate energy transaction, this arrangement was in substance a $220 million loan to EPMI at an interest rate of 7% per annum to be repaid in full over 12 years. CRRA was prohibited by statute from making such a loan.

  Eventually, Debtors became insolvent and EPMI stopped making the twice-monthly installments to CRRA. CRRA filed Page 4 a complaint against Debtors, seeking to impose a constructive trust on the $220 million paid by CL&P to EPMI on the theory that the agreements entered into with EPMI violated relevant Connecticut statutes restricting CRRA's investment opportunities and were thus void ab initio and a nullity. The Bankruptcy Court dismissed the Complaint in a Memorandum Decision dated March 27, 2003 on the grounds that (a) if the 2000 Agreements were void ab initio, they could not form the basis for CRRA's claim that it was the owner of the money transferred by CL&P to EPMI; and (2) CRRA could not establish that there was a resulting trust.*fn1 See Conn. Res. Recovery Auth. v. Enron Corp. (in Re Enron Corp.), 2003 Bankr. LEXIS 238 (Bankr. S.D.N.Y. Mar. 27, 2003).

  CRRA subsequently filed a motion before the Bankruptcy Court seeking reargument and reconsideration of the Bankruptcy's decision dismissing the Complaint. CRRA contended that the Bankruptcy Court erred by construing the 2000 Agreements as an integrated transaction rather than two separate and distinct transactions: a buy-down between CRRA and CL&P and a disguised loan transaction between CRRA Page 5 and EPMI. CRRA also sought leave to amend its Complaint. In an Order dated June 23, 2003, the Bankruptcy Court denied the motion. This appeal followed.

  DISCUSSION

  When determining the sufficiency of a plaintiff's complaint, a court "must accept as true all of the factual allegations set out in plaintiff's complaint, draw inferences from those allegations in the light most favorable to plaintiff, and construe the complaint liberally." Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001) (citations omitted). The Court reviews the Bankruptcy Court's dismissal of the Complaint de novo because the decision turns on solely legal determinations. See Miller v. Worloff & Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2003); Raine v. Lorimar Productions, Inc., 71 B.R. 450, 452 (S.D.N.Y. 1987).

  On appeal, CRRA reiterates the argument made in its motion for reconsideration — that is, the Agreements consisted of two distinct transactions: (1) a legitimate buy-down transaction, and (2) an illegal ultra vires loan from CRRA to Enron "which was void ab initio." (Appellant's Br. at 9). The Bankruptcy Court rejected this argument, stating that as a matter of law, the Agreements Page 6 must be interpreted as an integrated transaction. This Court agrees.

  Regardless of whether CRRA and CL&P reached a prior a agreement as to certain terms of the transaction as a result of the buy-down negotiations prior to negotiations with EPMI, the prior agreement was clearly superceded and integrated into the final 2000 Agreements. Indeed, basic principles of contract law dictate that oral and other agreements made prior to a final agreement are merged with, and superceded by, the terms of the final agreement. Moreover, it is clear from the face of the 2000 Agreements that the parties intended them to supercede all prior agreements. In fact, the Mid-Connecticut Project Termination, Assignment and Assumption Agreement ("MCPTA")*fn2 explicitly states that the 2000 Agreements "set forth the entire agreement between the Parties, including the Memorandum of Understanding." (MCPTA § 21.2) (emphasis added). Because, as a matter of law, the agreements between the parties must be interpreted as an integrated transaction, the Bankruptcy Court was correct in concluding that "there would be no purpose in permitting CRRA to amend Page 7 its Complaint to allege that the agreements were separate and distinct."

  Just as CRRA may not rely on the terms of agreements i entered into prior to the 2000 Agreements, it likewise may not rely on certain parts of the 2000 Agreements, as if the final transaction consisted of two separate and severable transactions, to establish its entitlement to the funds transferred from CL&P to EPMI. Connecticut law requires the Court to construe the various parts of the 2000 Agreement as an integrated whole. See, e.g., Orange Improvements Partnership v. Cardo, Inc., 984 F. Supp. 85, 92 (D. Conn. 1997) (holding that where parties execute multiple writings concerning the same subject matter, contracts are viewed as a whole and interpreted together). Contrary to CRRA's contention, interpreting the 2000 Agreements as an integrated whole does not elevate form over substance. Aside from the fact that all the documents were executed by the parties on the same day and that ...


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