United States District Court, S.D. New York
April 14, 2005.
In re ENRON CORP., et al., Debtors. NEVADA POWER COMPANY and SIERRA PACIFIC POWER COMPANY, Chapter 11, Appellants,
ENRON POWER MARKETING, INC. Appellee.
The opinion of the court was delivered by: BARBARA JONES, District Judge
The appellants in this action, Nevada Power Company and Sierra
Pacific Power Company (collectively "Nevada"), seek review of a
Bankruptcy Court decision which declined to recognize, or
"disallowed" two proofs of claim filed against the appellee,
Enron Power Marketing, Inc. ("EPMI").
Nevada's proofs of claim were based on two contingencies:
first, the possibility that proceedings before the Federal Energy
Regulatory Commission ("FERC") would result in a refund of money
Nevada had previously paid to EPMI, and second, the possibility
that counterclaims Nevada had filed in a related bankruptcy
proceeding would do the same. EPMI objected to the proofs of claim. By the time the
Bankruptcy Court ruled on them on March 26, 2004, FERC had denied
Nevada's request for a refund and the Bankruptcy Court itself had
dismissed Nevada's counterclaims in a separate proceeding.
Accordingly, the Bankruptcy Court disallowed the proofs of claim
because the contingencies on which they were based had not
Nevada appealed to this Court. The appellants do not argue that
the disallowance was wrong in substance; that is, they offer
nothing to suggest that the proofs of claim were valid. Rather,
they insist that the Bankruptcy Court lacked jurisdiction to
disallow the claims. The basis for their jurisdictional argument
is that the pending of a related appeal, known by the parties as
the "Adversary Appeal," stripped the Bankruptcy Court of
While this matter, the "Disallowance Appeal," was pending, this
Court ruled on the Adversary Appeal.*fn1 The outcome of that
appeal is quite familiar to the parties. (See October 15, 2004
Order, and December 23, 2004 Order, clarifying.) In very brief,
this Court affirmed the Bankruptcy Court's dismissal of the
counterclaims referenced above, reversed the grant of summary
judgment in EPMI's favor on the question of "Termination Payments," and affirmed almost everything else. (See December 23,
In the current Disallowance Appeal, the relief Nevada requested
was that the Bankruptcy Court's Disallowance Order be "reversed
and remanded with instructions to stay the claims allowance
process of the Nevada Companies' claims until the resolution of
the Adversary Appeal." (Appellants' Brief at 13.)
The Adversary Appeal is no longer pending. After this Court
reversed in part and remanded to the Bankruptcy Court, Nevada
erroneously appealed to the Court of Appeals. That Court
dismissed the matter, noting that the case is properly before the
Bankruptcy Court. Given that the appellants did not attack the
substance of the Bankruptcy Court's decision to disallow the
claims, only its jurisdiction to do so while the Adversary Appeal
was pending, it would seem that the Disallowance Appeal is moot.
However, to avoid confusion and put an end to this piece of the
prolix proceedings between the parties, the Court will briefly
address the substance of Nevada's argument.
Standard of Review
A bankruptcy court's conclusions of law are reviewed de novo,
and factual determinations for clear error. In re Ionosphere
Clubs, Inc., 922 F.2d 984, 988-89 (2d Cir. 1990); FED. R. BANKR.
P. 8013. The Bankruptcy Court's decision to disallow appellants' proofs of claim was based on a factual determination
that the contingencies necessary to those claims had not
materialized. However, Nevada's appeal on jurisdictional grounds
is a question of law, which this Court reviews de novo.
Nevada argues that the Bankruptcy Court had no right to conduct
a claims allowance proceeding at all. To support its argument,
Nevada offers a kitchen sink of jurisdictional complaints: that
the Disallowance proceeding was a "re-litigation" of the
Adversary proceeding, and should be blocked by res judicata; that
the disallowance was an "enlargement" of the Bankruptcy Court's
earlier order while an appeal of that order was pending, which
the principle of divestiture should block; or, alternatively,
that it was an "enforcement" of the judgment, barred by a Stay
Order issued by the Bankruptcy Court.
It is none of these. In the Adversary proceeding between Nevada
and EPMI, the Bankruptcy Court dismissed Nevada's counterclaims.
Later, in the Disallowance proceeding, the Bankruptcy Court held
that because the counterclaims had been dismissed they could not
be the basis of Nevada's proof of claim. That's not enlargement
or re-litigation, it's logic.
Neither divestiture nor res judicata applies here. The function
of Bankruptcy Court is to resolve controversies involving debtors
and creditors who may have multiple claims against each other. See In re Sonnax Industries, Inc.,
907 F.2d 1280, 1283 (2d Cir. 1990). As a general principle, an order
or judgment in federal court is binding and entitled to
preclusive effect even when an appeal from that judgment is
pending. See, e.g., Petrella v. Siegel, 843 F.2d 87, 90 (2d
Cir. 1988). The act of appealing one piece of bankruptcy
litigation does not suspend action in separate, albeit related
pieces. See In re Board of Directors of Hopewell Int'l Ins.
Ltd., 258 B.R. 580, 582-583 (Bankr. S.D.N.Y. 2001) (citing
Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58
The Stay Order in question was issued by the Bankruptcy Court
after its ruling in the Adversary Proceeding. The Stay remains in
place; its purpose is to prevent judgment monies from changing
hands prematurely. It was not intended to bring the litigation
between the parties to a halt.
In addition, Nevada asserts that the allowance or disallowance
of proofs of claim related to pre-petition contracts is not a
core bankruptcy matter, and should have been decided by an
Article III court. (Appellants' Br. at 14-19.) This Court
explicitly found to the contrary in its December 23, 2004 order.
(December 23, 2004 Order at 13.)
Nevada's final argument is its claim of necessity: that the
disallowance of the two proofs of claim should be reversed to the extent that this Court, in ruling on the Adversary Appeal,
reversed the Bankruptcy Court and affected the underlying basis
of the proofs of claim. (Appellants' Br. at 20.) This Court
affirmed the dismissal of Nevada's counterclaims, and it had no
jurisdiction over the appeal of the FERC proceeding. The only
substantive element of the Adversary Appeal on which the Court
ruled in Nevada's favor was to reverse the Bankruptcy Court's
grant of summary judgment to EPMI on the termination payments.
(See October 15, 2004 Order.) The termination payments concern
fees which EPMI claims it is owed, but which Nevada has not yet
paid. Therefore, a final determination in Nevada's favor would
not result in any money changing hands, and Nevada could not
sustain a proof of claim on that basis.
Should any of the underlying contingencies come to pass in the
course of subsequent litigation, Nevada may make an application
pursuant to Section 502(j) of the Bankruptcy Code for
reconsideration of a disallowed claim. This Court will not
overturn the Bankruptcy Court on speculation. For the foregoing reasons, the Bankruptcy Court's March 26,
2004 Order disallowing Nevada's proofs of claim is hereby
AFFIRMED. The Clerk of the Court is directed to close the case.