In re Enron Corp., 01-16034 (AJG).

• Decision Date: 17 September 2003
• Docket Number: No. 01-16034 (AJG).,01-16034 (AJG).
• Parties: In re ENRON CORP., et al., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

Page 513

298 B.R. 513

In re ENRON CORP., et al., Debtors.

No. 01-16034 (AJG).

United States Bankruptcy Court, S.D. New York.

September 17, 2003.

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Winston & Strawn, David Neier, New York City, Terry John Malik, Chicago, IL, for Midland Cogeneration Venture Limited Partnership.

Weil, Gotshal & Manges LLP, Martin J. Bienenstock, Brian S. Rosen, New York City, Melanie Gray, Houston, TX, Martin A. Sosland, Dallas, TX, for Debtors.

Squire, Sanders & Dempsey L.L.P., Stephen D. Lerner, Jeffrey A. Marks, Kim D. Seaton, Cincinnati, OH, Co-Counsel for Official Committee of Unsecured Creditors.

MEMORANDUM DECISION AND ORDER DENYING MIDLAND COGENERATION LIMITED PARTNERSHIP'S MOTION TO AMEND A PROOF OF CLAIM OR TO PERMIT A LATE-FILED PROOF OF CLAIM BASED ON EXCUSABLE NEGLECT

ARTHUR J. GONZALEZ, Bankruptcy Judge.

The issues before the Court are (1) whether Midland Cogeneration Venture Limited Partnership ("Midland") may amend a timely-filed proof of claim, which concerns a natural gas purchase agreement, that it filed against Enron North American Corp. ("ENA") (a) to include an additional claim for a guaranty that Enron Corp. ("Enron") executed regarding the purchase agreement and (b) to add Enron as an additional debtor to the original proof of claim or, in the alternative, (2) whether Midland may file a late proof of claim against Enron for the guaranty claim due to Midland's failure to timely file a claim based on alleged "excusable neglect." Upon consideration of the pleadings and arguments of the parties, the Court finds Midland may not amend its original proof of claim or, in the alternative, have its late-filed proof of claim against Enron deemed timely.

I. Jurisdiction

The Court has subject matter jurisdiction over this matter under sections 1334(b) and 157(a) of title 28 of the United States Code and under the July 10, 1984 "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York (Ward, Acting C.J.). This is a core proceeding within the meaning of section 157(b)(2)(A), (B) and (O) of title 28 of the United States Code.

II. Background

A. General Procedural History

Commencing on December 2, 2001 (the "Petition Date"), Enron, ENA and certain of Enron's direct and indirect subsidiaries (collectively, the "Debtors" or "Debtor," referencing a single entity) each filed voluntary petition for relief under chapter 11 of title 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The Debtors' chapter 11 cases have been procedurally consolidated for administrative purposes. Since the Petition Date, the Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

By order dated August 1, 2002 (the "Bar Date Order"), this Court set October 15, 2002 as the bar date (the "Bar Date") by which proof of claims must be filed against certain Debtors. On August 10, 2002, the Debtors mailed, inter alia, the notice of the Bar Date ("Bar Date Notice") to potential creditors of the Debtors, including Midland.

B. Midland's Proof Of Claim

On May 26, 1993, Midland entered into a certain natural gas purchase agreement (the "Purchase Agreement") with Union Pacific Fuels, Inc. ("Union Pacific"), whereby Union Pacific committed to supply natural gas to Midland from October 1, 1993 through September 30, 2006.

On May 7, 1996, Union Pacific and ENA (formerly known as Enron Capital & Trade Resources Corp.) executed a certain assignment and assumption agreement (the "Assignment and Assumption Agreement"), effective June 1, 1996, whereby ENA succeeded to all of Union Pacific's rights and liabilities under the Purchase Agreement. Midland also executed the Assignment and Assumption Agreement consenting to the assignment and transfer by Union Pacific and the acceptance and assumption by ENA of the agreement.

In consideration of, and as an inducement for Midland consenting to the Assignment and Assumption Agreement where ENA assumed the Purchase Agreement, Enron, in its capacity as parent of ENA, executed and delivered to Midland a certain guaranty (the "Guaranty") dated as May 7, 1996, whereby Enron absolutely and unconditionally guaranteed the obligations of ENA under the agreement. The Guaranty provides for the recovery of fees and expenses incurred by Midland for ENA's breach and rejection of the Purchase Agreement. Schedule F of Enron's statement of financial affairs ("Statement of Financial Affairs"), entitled "Creditors Holding Unsecured Nonpriority Claims" and filed on June 17, 2002, listed the Guaranty as contingent and unliquidated.

Midland alleges that it engaged in post-petition discussions and negotiations with ENA on ENA continuing the supply of natural gas and regarding the possibility of ENA rejecting the Purchase Agreement and efforts to mitigate damages. Midland further alleges that during discussions of the Purchase Agreement, Midland and ENA also discussed a second natural gas purchase agreement, dated as of September 1, 1990, between ENA, as successor by sale and assignment to Ultramar Oil and Gas Limited, and Midland (the "Ultramar Agreement"). Midland asserts that it conducted extensive negotiations with ENA on quantifying pre-petition defaults, the terms of cure and other issues related to the proposed assumption and assignment of the Ultramar Agreement. By order dated May 17, 2002, the Court authorized ENA to assume the Ultramar Agreement and assign it to El Paso Merchant Energy, L.P.

On March 22, 2002, ENA sent a letter to Midland indicating its intent to not deliver any natural gas to Midland under the Purchase Agreement during April 2002 and, indeed, ENA failed to make deliveries in April 2002. Pursuant to an amended April 11, 2002 order of the Court establishing procedures for rejecting executory contracts, ENA sent notice to Midland on April 19, 2002 rejecting the Purchase Agreement.

On October 10, 2002, Midland filed a proof of claim against ENA (the "Proof of Claim") in the amount of $12,567,557 based, in part, on ENA's failure to deliver natural gas to Midland from April 1 to April 19, 2002 prior to rejection of the Purchase Agreement, and, in further part, pursuant to section 365(g) of the Bankruptcy Code, out of damages from ENA's rejection of the Purchase Agreement. On an exhibit to the Proof of Claim, Midland stated it reserved the right to amend, supplement or otherwise modify the claim at any time. Midland, however, failed to include the Guaranty claim and Enron as a debtor on the Proof of Claim.

Accordingly, on April 24, 2003, Midland filed a motion (the "Motion"), requesting for an order to allow it to amend the Proof of Claim to include a claim for the Guaranty against Enron or, in the alternative, to allow it to file a late proof of claim against Enron for the Guaranty pursuant to Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rule") based on excusable neglect. In response, Enron and ENA filed an objection to the Motion on May 20, 2003, which was joined on May 21, 2003 by the Official Committee of Unsecured Creditors appointed to serve in the Debtors' bankruptcy proceedings. A hearing was held on May 22, 2003.

III. Discussion

A. Parties' Contentions

1. Midland's Contentions

Midland maintains that the omission of the Guaranty claim against Enron from the Proof of Claim did not result from any bad faith or dilatory behavior. Rather, Midland alleges that "neglecting to file a claim against Enron ... under the ... Guaranty resulted solely from inadvertence." In particular, Midland explains that since it was so heavily focused upon, and involved in, negotiations with ENA regarding the rejection of the Purchase Agreement and the assignment and assumption of Ultramar Agreement, it neglected to include the Guaranty claim with the original Proof of Claim.

Although the Motion was filed approximately six months after the Bar Date, Midland contends that the Debtors will not be prejudiced with amending the Proof of Claim against ENA or a filing of late proof of claim against Enron because the Debtors neither have filed a plan of reorganization nor a disclosure statement as of the Motion date of April 24, 2003.¹ Additionally, Midland notes that since (1) the Proof of Claim was timely filed in ENA's bankruptcy proceeding, (2) the Guaranty was well known by business personnel and counsel for Enron and ENA, (3) extensive discussions and communications occurred among the parties regarding the Purchase Agreement and the Ultramar Agreement, and (4) the Guaranty was disclosed on Enron's Statement of Financial Affairs, the Debtors and their creditors have had full knowledge of the Guaranty liability.

Midland also argues that the Debtors' creditors will unlikely be prejudiced by allowing the Guaranty claim. Midland notes it is foreseeable that the Debtors will seek to substantively consolidate their chapter 11 estates as part of any plan of reorganization filed in their proceedings and, thus, Midland's claims will be treated as a single claim against a common fund. Midland thereby asserts that filing a claim directly against Enron under the Guaranty may be viewed as an action taken solely in an abundance of caution. Midland maintains that even if the Debtors' estates are not consolidated, Midland's rights under the Guaranty were preserved because Enron listed the Guaranty on its Statement of Financial Affairs. Midland claims that in this regard it seeks to liquidate a claim that until now Enron has treated as unliquidated and which the Court will ultimately have to estimate as part of the claim allowance process.

Moreover, Midland notes that it is not seeking to assert a claim entirely distinct from the original Proof of Claim it filed. Midland explains that as a practical matter, an absolute and unconditional guaranty, such as the Guaranty,...