United States District Court, S.D. New York
September 22, 2004.
In re: ENRON CORPORATION, et al., Debtors. ENRON POWER MARKETING, INC., Plaintiff,
HOLCIM, INC., F/K/A HOLMAN, INC., Defendant.
The opinion of the court was delivered by: MICHAEL MUKASEY, Chief Judge, District
OPINION AND ORDER
Defendant Holcim, Inc. ("Holcim") moves pursuant to
28 U.S.C. § 157(d) for an order withdrawing the reference of this adversary
proceeding to the United States Bankruptcy Court for this
District. Plaintiff and bankruptcy debtor Enron Power Marketing,
Inc. ("Enron") opposes the motion. For the following reasons, the
motion is denied.
As forth in the complaint, on June 29, 2001, Enron and Holcim
entered into a Master Power Purchase and Sale Agreement ("MPPSA")
pursuant to which Enron agreed to sell, and Holcim agreed to buy,
wholesale power at a specified price on specified dates during
the period July 1, 2003 through June 30, 2004. (Compl. ¶ 1-2) In
addition, the parties agreed that if a party's conduct triggered
an Event of Default, i.e. bankruptcy, the non-defaulting party
may declare an Early Termination Date, thereby terminating all
transactions under the MPPSA, and one party would have to pay the
other an Early Termination Payment ("Payment"). (Id. at ¶ 2)
Calculation of this payment depends largely on movements in the
forward price curve of wholesale power at delivery dates
specified in the MPPSA. (Id.) If, on the Early Termination
Date, the forward price curve at the pertinent delivery point was
higher than the contract price for delivery on that date, Enron would owe Holcim the Payment. (Id.) On the
other hand, if at the time of Early Termination the forward price
curve at the pertinent delivery point was lower than the contract
price, Holcim would owe Enron the Payment. (Id.) Pursuant to
what is commonly called a "full two-way payment" clause, the
Payment must be paid to whomever it is owed, regardless of which
party is the Defaulting Party. (Id.)
In light of Enron's bankruptcy filing on December 2, 2001,
Holcim informed Enron on January 24, 2002, that Enron was in
default and designated January 25, 2002 as the Early Termination
Date. (Id. at ¶ 3) Enron claims that under the MPPSA, Holcim
was then obligated to calculate and give Enron the Payment.
(Id.) Holcim refused to do both. (Id.) Enron in turn made its
own calculation and determined that, because the forward price
curve of energy had declined between the date of the relevant
transactions and the Early Termination Date, Enron was entitled
to a Payment of at least $3,025,863. (Id.) On December 11,
2002, Enron notified Holcim of its calculation and demanded
payment. (Id.) Holcim persisted in its refusal. (Id.) On
October 22, 2003, Enron filed its adversary complaint in
Bankruptcy Court, asserting six claims for relief: (1) turnover
of property under Section 542(b) of the Bankruptcy Code; (2)
declaratory relief that Holcim violated the automatic stay
provided for by Section 362 of the Bankruptcy Code; (3) breach of contract; (4) unjust enrichment; and (5) declaratory relief that
the arbitration clause in the MPPSA should not be enforced.
(Id. at ¶ 27-48) In its responsive pleading, Holcim moves to
withdraw the reference. In addition, Holcim requests that should
this court grant that motion, it grant also Holcim's motion to
compel arbitration of the dispute pursuant to Sections 2 and 3 of
the Federal Arbitration Act. 9 U.S.C. §§ 2 & 3.
Before Enron commenced this action, the Bankruptcy Court issued
an order referring to mediation overseen by United States
Bankruptcy Judge Allan L. Gropper all pending and future
adversary proceedings between Enron and its counterparties in
wholesale trading and retail agreements. In that order, the
Bankruptcy Court stressed that these proceedings shared important
issues, including "the enforceability and applicability of
setoff, recoupment, arbitration, and termination provisions, the
calculation and payment of termination payments, [and] alleged
grounds for rescission." First Amended Order Governing Mediation
of Trading Cases dated March 20, 2003 at 1 (Attached Ex. B to
Enron's Mem. of Law in Opp'n to Holcim's Mot. to Withdraw the
Reference). The Mediation Order also stayed all pending motions
seeking to arbitrate or to modify the automatic stay in order to
seek arbitration. See id. at 2. However, the Mediation Order
allowed parties to file motions to compel arbitration and to
withdraw the reference to the Bankruptcy Court. See id. at 2-4. The instant action has been referred to the mediation process
pursuant to the Mediation Order.
This court has subject matter jurisdiction pursuant to
28 U.S.C. §§ 1334 and 157(d). Under a standing order issued in July
1984 by then-Acting Chief Judge Ward pursuant to
28 U.S.C. § 157(c), all Chapter 11 cases in the Southern District of New York
are automatically referred to this district's bankruptcy judges.
A party can move to withdraw the reference to the Bankruptcy
Court pursuant to 28 U.S.C. § 157(d), which states:
The 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. The district court shall, on timely
motion of a party, so withdraw a proceeding if the
court determines that resolution of the proceeding
requires consideration of both title 11 and other
laws of the United States regulating organizations or
activities affecting interstate commerce.
28 U.S.C. § 157(d). Holcim does not argue for mandatory
withdrawal of the instant proceeding under the second sentence of
Section 157(d). Instead, defendant moves for permissive
withdrawal under the first sentence of the provision.
With regard to permissive withdrawal under Section 157(d), the
Second Circuit in Orion Pictures Corp. v. Showtime Networks
(In re Orion Pictures Corp.), 4 F.3d 1095, 1100-01 (2d Cir. 1993) created an analytical framework for determining what
constitutes "cause" to withdraw a case from bankruptcy court. The
first step of that analysis is to decide whether the claims are
"core" or "non-core," largely because it is upon this issue that
other relevant "questions of efficiency and uniformity will
turn." Id. at 1101. Congress has codified the core/non-core
distinction in 28 U.S.C. § 157(b):
Bankruptcy 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. . . .
28 U.S.C. § 157(b)(1), and has set forth a nonexhaustive list of
fifteen types of core proceedings. 28 U.S.C. § 157(b) (2). As a
general matter, "core matters are ones with which the bankruptcy
court has greater familiarity and expertise, subject to appellate
review by the district court." LTV Steel Co. v. Union Carbide
Corp. (In re Chateaugay Corp.), 193 B.R. 669, 675 (S.D.N.Y.
1996). "Non-core matters are those in which the district court is
more proficient, and which the district court reviews de novo."
Id. "Courts in this Circuit construe `core' jurisdiction
broadly to honor the intent of Congress and to avoid overwhelming
the district court with bankruptcy matters." Id. (citing Ben
Cooper, Inc. v. Ins. Co. of the State of Pennsylvania (In re
Ben Cooper, Inc.), 896 F.2d 1394
, 1398-99 (2d Cir. 1990)).
After making the core/non-core determination, the court must
consider "judicial economy, delay and cost of the parties, uniformity or bankruptcy administration, forum shopping, and
other related factors to determine if permissive withdrawal is
warranted." Id. at 677 (citing Orion, 4 F.3d at 1101). The
Second Circuit has emphasized that the principal question
underlying the Orion factors is efficient and consistent
administration of the laws. Orion, 4 F.3d at 1101. The Court
also stressed that the ultimate decisions of whether to withdraw
and the timing of such withdrawal are matters within the district
court's discretion. See id.
Each of the Orion factors other than the core/non-core issue
weighs in favor of denying Holcim's motion to withdraw the
reference without prejudice to renewal at a later stage of the
proceeding. Over all, Holcim's motion is premature. With regard
to the core/non-core issue, the Bankruptcy Court has not yet
determined whether this action is core or non-core. Section 157
(b) (3) instructs that the bankruptcy judge should make this
determination in the first instance. 28 U.S.C. § 157(b)(3) ("The
bankruptcy judge shall determine . . . whether a proceeding is a
core proceeding under this subsection."). Even if this action is
a non-core proceeding, the Bankruptcy Court may still adjudicate
pretrial matters not requiring the entry of final orders or
judgments. See 28 U.S.C. § 157 (c) (1); Hassett v. Bancohio
Nat'l Bank (In re CIS Corp.), 172 B.R. 748, 763-64 (S.D.N.Y. 1994).
In any event, there is no need for this court to preempt the
core/non-core determination by the Bankruptcy Court.
Moreover, the interests of judicial efficiency and uniform
administration of Enron's bankruptcy weigh in favor of denying
Holcim's motion at this time. As the Bankruptcy Court detailed in
its Mediation Order, this case is one of many adversary
proceedings, most if not all brought by Enron, relating to
contracts for delivery of coal, natural gas, electricity, and
other commodities. Most of these contracts contain arbitration
clauses. They also contain termination provisions similar to the
one at issue in this case. The counterparties to these various
contracts potentially owe Enron billions of dollars in accounts
receivable and termination payments. Enron's claims against
Holcim share factual and legal issues with a multiplicity of
other adversary proceedings pending before the Bankruptcy Court.
See, e.g. Enron N. Am. Corp. v. Media Gen., Inc. (In re
Enron Corp.), No. 04-2527, 2004 WL 1197243 (S.D.N.Y. May 28,
2004); United Illuminating Co. v. Enron Power Mktg. (In re
Enron Corp.), No. 03-5078, 2003 WL 22171695 (S.D.N.Y. Sept. 22,
2003); Enron Power Mktg., Inc. v. City of Santa Clara (In re
Enron Power Mktg., Inc.), No. 01-7964, 2003 WL 68036 (S.D.N.Y.
Jan. 8, 2003).
In addition, the Court-appointed mediator, himself a bankruptcy
judge, is attempting to resolve the disputes referred to him under the Mediation Order. To withdraw this case now would
defeat the purpose of the Mediation Order.
Holcim argues that the MPPSA's provision for arbitration of any
disputes arising from the agreement compels withdrawal of the
reference. In a similar case, the Second Circuit refused to lift
the stay in a bankruptcy proceeding to permit arbitration of a
dispute between a debtor and an insurance company from whom the
debtor sought to recover insurance proceeds. To lift the stay in
such a case and permit arbitration would hinder "the bankruptcy
court's ability to preserve and equitably distribute the Trust's
assets," United States Lines, Inc. v. American Steamship
Owners Mut. Prot. & Indem. Assoc., Inc. (In re United States
Lines, Inc.), 197 F.3d 631, 641 (2d Cir. 1999), and interfere
with "the bankruptcy court's core administrative function of
asset allocation among creditors." Id. at 638. There is no
reason to conclude differently here, particularly given the
Bankruptcy Court's current effort to resolve this case and
related others through mediation.
Holcim contends alternatively that its Seventh Amendment right
to a jury trial in district court demands withdrawal of the
reference to the Bankruptcy Court. Courts in this Circuit have
held consistently that a party's entitlement to a jury trial
alone is insufficient to compel immediate withdrawal of the
reference. Again, with regard to a jury trial, withdrawal at this stage of the proceeding would be premature.
See Schneider v. Riddick (In re Formica Corp.),
305 B.R. 147, 150 (S.D.N.Y. 2004) ("While the plaintiff has a right to a
jury trial, such a right does not compel withdrawing the
reference until the case is ready to proceed to trial.");
Hunnicutt Co. v. TJX Cos. (In re Ames Dep't Stores),
190 B.R. 157, 162-63 (S.D.N.Y. 1995) ("withdrawal of the reference . . .
still depends on the particular circumstances of each case,
including whether the case is likely to reach trial. . . ."). In
deciding whether a jury demand calls for withdrawal of the
reference, courts must consider (1) the likelihood of the case
reaching trial, see Orion, 4 F.3d at 1102; (2) the extent of
discovery, see id.; and (3) the bankruptcy court's familiarity
with the case thus far. Kenai Corp. v. Nat'l Union Fire Ins.
Co. (In re Kenai Corp.), 136 B.R. 59, 61 (S.D.N.Y. 1992).
Because this case is still in the beginning stages and discovery
likely will require substantial court oversight, we can only
speculate when or whether the case will be tried. The referral of
this case to the mediation process adds another layer of
uncertainty as to whether and when this case will be trial-ready.
In any event, the Bankruptcy Court is already familiar with
Enron's claims through its exposure to this case and others, and
thus is best equipped to handle discovery and other pretrial
matters. Again, the interests of judicial economy and uniform
administration of Enron's bankrupt estate favor denial of Belo's motion to withdraw
the reference at this time.
As for forum shopping considerations, courts in this Circuit
have construed Section 157(d) narrowly in order to prevent an
"escape hatch" out of bankruptcy court. See Hassett v.
Citicorp N. Am., Inc. (In re CIS Corp.), 188 B.R. 873, 877
(S.D.N.Y. 1995). Coupled with this concern, the Bankruptcy
Court's command of claims and issues analogous to those in this
case demand denial of Holcim's motion to withdraw the reference.
* * *
For the reasons set forth above, Holcim's motion to withdraw
the reference is denied.
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