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IN RE ENRON CORPORATION

United States District Court, S.D. New York


September 22, 2004.

In re: ENRON CORPORATION, et al., Debtors. ENRON POWER MARKETING, INC., Plaintiff,
v.
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.

  I.

  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.

  II.

  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.

  III.

  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.

  SO ORDERED.

20040922

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