Hanratty v. Philadelphia Elec. Co.

• Decision Date: 15 November 1989
• Docket Number: Civ. A. No. 89-4307,89-4308.
• Parties: Kevin HANRATTY and Patricia Hanratty v. PHILADELPHIA ELECTRIC COMPANY, and Edward Sparkman, Trustee. Dennis MUCERINO and Dorothy Mucerino v. PHILADELPHIA ELECTRIC COMPANY, and Edward Sparkman, Trustee.
• Court: U.S. District Court — Eastern District of Pennsylvania

107 B.R. 55 (1989)

Kevin HANRATTY and Patricia Hanratty v. PHILADELPHIA ELECTRIC COMPANY, and Edward Sparkman, Trustee.

Dennis MUCERINO and Dorothy Mucerino v. PHILADELPHIA ELECTRIC COMPANY, and Edward Sparkman, Trustee.

Civ. A. Nos. 89-4307, 89-4308.

United States District Court, E.D. Pennsylvania.

November 15, 1989.

Margaret E. Taylor, Community Legal Services, Philadelphia, Pa., for plaintiffs.

T.H. Maher Cornell, Philadelphia, Pa., for defendants.

OPINION AND ORDER

VAN ANTWERPEN, District Judge.

INTRODUCTION

This is an appeal pursuant to 28 U.S.C. § 158(a) from final orders in these cases entered by the United States Bankruptcy Court for the Eastern District of Pennsylvania.

Plaintiffs Kevin and Patricia Hanratty filed a Petition for Relief under the Bankruptcy Code, Chapter 13, on December 5, 1988 (Bankruptcy No. 88-14259F, later also Adversary No. 89-0026F). At the time of the filing the Hanrattys were indebted to Philadelphia Electric Company ("PECO") in the amount of $282.00. On December 28, 1988 PECO sent a letter to the Hanrattys threatening termination of service unless they gave PECO a security deposit of $100.00 by February 6, 1989. On January 17, 1989 the Hanrattys filed a Motion for a Temporary Restraining Order and/or Preliminary Relief and for an Expedited Hearing. By Stipulation filed February 22, 1989 PECO agreed not to terminate service to the Hanrattys pending a decision in this adversary proceeding.

Plaintiffs Dennis and Dorothy Mucerino filed a petition for Relief under the Bankruptcy Code, Chapter 13, on November 6, 1988. (Bankruptcy No. 88-14028F, later also Adversary No. 88-2314F). At the time of filing the Mucerinos were indebted to PECO in the amount of $829.82. On December 5, 1988 PECO sent a letter to the Mucerinos threatening termination of service unless they gave PECO a security deposit of $90.00 by January 13, 1989. On December 16, 1988 the Mucerinos filed a Motion for Temporary Restraining Order and/or Preliminary Relief and for an Expedited Hearing. By Stipulation filed January 11, 1989 PECO agreed not to terminate service to the Mucerinos pending a decision in this adversary proceeding.

A hearing on both matters was held by the Bankruptcy Court on February 27, 1989. On April 27, 1989, the Bankruptcy Court entered an Order granting Summary Judgment in favor of the plaintiffs in both matters. PECO filed its notice of Appeal on May 23, 1989.

The appeal presented the following issues:

1. Did the Bankruptcy Court err when it held that, inasmuch as Philadelphia Electric Company does not seek deposits from new residential customers, it cannot demand deposits from debtors?

2. Did the Bankruptcy Court err when it interposed a standard or condition precedent that is not contained in the statutory language nor referred to in the legislative history, in order to cure a perceived defect?

The District Court's review of the Bankruptcy Judge's decision in the case is appellate. 28 U.S.C. § 158(a). The Bankruptcy Court's findings of fact are subject to review under a clearly erroneous standard and its conclusions of law are subject to de novo review. Bankruptcy Rule 8013; In the Matter of Jersey City Medical Center, 817 F.2d 1055 (3rd Cir.1987).

For the reasons given below, I reach the following conclusions of law on the issues raised by appellant PECO:

1. The Bankruptcy Court erred in its finding that, inasmuch as PECO does not seek deposits from new residential customers, it cannot demand deposits from debtors, as defined in the Bankruptcy Act, because the Bankruptcy Court\'s finding did not give effect to the mandate of 11 U.S.C. § 366(b) that a utility can demand a deposit not earlier than 20 days after the date of the order for relief.

2. The Bankruptcy Court erred when it interposed as a standard or condition precedent to a utility\'s requirement of a security deposit from a debtor more than twenty days after the date of the order for relief a requirement that a similar security deposit be required of non-debtors.

DISCUSSION

The parties agree that this case is governed by Section 366 of the Bankruptcy Act, 11 U.S.C. § 366, which reads as follows:

(a) Except as provided in subsection (b) of this section, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.

(b) Such utility may alter, refuse, or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnishes adequate assurance of payment, in the form of a deposit or other security, for service after such date. On request of a party in interest and after notice and a hearing, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment.

PECO concedes that, while its tariffs permit requiring a security deposit from residential customers, as a matter of policy and practice it does not do so. PECO does require a security deposit from customers who are under the protection of the Bankruptcy Act, if their account was in arrears at the time of the commencement of the case (The commencement of a voluntary case constitutes an "order for relief" pursuant to 11 U.S.C. § 301).

The purpose of § 366 is to permit a debtor to continue to receive postpetition utility service that may be monopolistic (e.g., only one electric company services an area), and are essential to a minimum standard of living.

This section gives debtors protection from a cut-off of service by a utility because of the filing of a bankruptcy case. This section is intended to cover utilities that have some special position with respect to the debtor, such as an electric company, gas supplier, or telephone company that is a monopoly in the area so that the debtor cannot easily obtain comparable service from another utility. The utility may not alter, refuse, or discontinue service because of the nonpayment of a bill that would be discharged in the bankruptcy case. Subsection (b) protects the utility company by requiring the trustee or the debtor to provide, within ten days, adequate assurance of payment for service provided after the date of the petition.

S.Rep. No. 95-989, 95th Cong., 2d Sess. 60 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5846;¹

The plaintiff debtors in these actions, and the Court below, maintain that the provision of § 366(b) permitting a utility to require a security deposit after twenty days from the order for relief is limited by the provision § 366(a). They rely on the following cases for the proposition that a utility, to avoid discrimination in applying the security deposit requirement must not require a greater security deposit than they would require from a new customer without any prior credit history with that utility: Whittaker v. Philadelphia Electric Co., 92 B.R. 110 (E.D.Pa.1988); In re Roberts, 29 B.R. 808 (E.D.Pa.1983); In re Kiriluk, 76 B.R. 979 (Bankr.E.D.Pa.1987). These cases are inapposite, because they dealt with the restoration of service before the running of the twenty day period.

In Roberts, telephone service to the debtor had been terminated for non-payment of charges over three months before the bankruptcy petition was filed. The Bell Telephone Company of Pennsylvania ("Bell") had a policy of requiring a $75.00 deposit from individual consumers seeking new residential telephone service who had an unknown credit rating or a known unfavorable credit rating. The Roberts Court said:

"The Bankruptcy Court, 27 B.R. 101 (Bankr.1983), after fully reviewing the legislative history of Section 366 as well as the relevant case law, concluded that Section 366 does not obligate Bell to turn on service immediately after the order for relief is entered and then give the debtor twenty (20) days to post a security deposit. That court, in making its determination, specifically noted the limited nature of the holding. The debtor\'s telephone service was terminated, due to the non-payment of her telephone bills, prior to the filing of her petition in bankruptcy. There was no existing service at the time the petition was filed. (Opinion of the court, p. 103) (emphasis original).

In affirming the court\'s holding, we note that the essence of the debtor\'s relationship with Bell is that of a new customer. As is true of all of Bell\'s customers who have failed to establish or maintain a satisfactory credit rating, Roberts was required to post a security deposit prior to initiation of service. To rule that Section 366(b) compels Bell to give service for twenty days without the posting of a deposit under these circumstances would be to turn the bankruptcy petition into a means of extracting greater services from Bell than it is required to give under the applicable Pennsylvania Public Utility Commission tariffs.

* * * * * *

The holding then is a narrow one where a Bell customer has, prior to the filing of a petition in bankruptcy, been terminated from Bell residential service in accordance with the applicable tariffs allowing for termination of service due to the failure to establish or maintain a satisfactory credit rating, that customer as a debtor in bankruptcy may be required, prior to the obtaining of new residential telephone service, to post the same security deposit as that required of a nonbankruptcy Bell customer who has an unknown credit rating or a known unfavorable credit rating.

Roberts, supra, 29 B.R., at 809, 810.

In In re Kiriluk, supra, water service had been terminated for non-payment of charges one day before filing of the petition. Upon institution of the adversary proceeding an order was entered which restored service, pendente lite. The Court denied summary judgment because material facts were in dispute. It found, however,...