Most Read Contributor in United States, December 2016
In a 9 page decision dated October 6, 2016, Judge Carey of
the Delaware Bankruptcy Court granted the motion of Portland
General Electric ("PGE") for relief from the automatic
stay of the Bankruptcy Code. Judge Carey's opinion is available here (the
"Opinion"). PGE moved that the stay be
lifted so that it could initiate litigation against
various debtor entities arising out of alleged breaches of a
construction agreement between PGE and the Debtors called the
"Turnkey Engineering, Procurement & Construction Agreement
for Carty Generating Station" (the "EPC
In 2013, the Debtors entered into the EPC
Contract for PGE. The Debtors' ultimate
parent company, Abengoa, signed a Guaranty and the
Debtors obtained a performance bond. In November the
relationship between PGE and the Debtors began deteriorating and in
December 2015, PGE terminated the EPC Contract.
Around the same time, PGE sought recovery pursuant to the
performance bond, but its claim was denied. On December 31, 2015,
in accordance with the provisions of the Guaranty, Abengoa
commenced an ICC arbitration with PGE. Abengoa joined the
Debtors and the bond providers to the arbitration, relying
upon clauses in the Guaranty that provided for arbitration as
the exclusive forum.
In February 2016, PGE sought to enjoin the arbitration. In March
2016, PGE commenced an action against the Sureties in the U.S.
District Court for the District of Oregon. On March 29, 2016,
the Debtors filed their voluntary petitions for relief under
chapter 11. On May 25, 2016,
PGE filed its Motion for Relief from the Stay to pursue claims
against the Debtors in the District of Oregon.
Judge Carey's Opinion
Judge Carey started his discussion of applicable law
by outlining the factors required to grant a motion for
relief from stay as provided in Rexene Products, 141 B.R.
574, Judge Carey then cited 11 U.S.C. 362(g), which provides
that, In any hearing under subsection (d) or (e), concerning
relief from the stay of any act under subsection (a) of this
(1) the party requesting such relief
has the burden of proof on the issue of the debtor's
equity in property; and
(2) the party opposing such relief has the burden of proof on all
Judge Carey held that pursuant to this section of the
Bankruptcy Code, it is not PGE's burden to show that
the Debtors would not be harmed by stay relief. Opinion
at *5. He then quickly determined that (1) the Debtors have
failed to carry their burden to demonstrate harm and (2) the
potential hardship to PGE considerably outweighs the hardship to
Judge Cary agreed with PGE that allowing the Oregon District
Court to manage this matter seems the best and most efficient
resolution. He acknowledged that a request to initiate, rather than
resume, litigation commenced pre-petition is somewhat unusual.
However, Judge Carey determined that because proceedings on related
matters had already commenced and the Oregon District Court had
already ruled on a related issue, it was best positioned to resolve
the question of whether the underlying litigation should be
resolved in arbitration or through litigation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Orrick Restructuring Senior Counsel Marc Levinson is one of the chapter 9 experts assisting in the preparation of a chapter 9 manual for bankruptcy judges and court clerks that has been posted on the website...
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