In re Cajun Elec. Power Co-op., Inc.

• Decision Date: 11 February 1999
• Docket Number: Bankruptcy No. 94-11474,Civ.A. No. 94-2763 B-2,Adversary No. 96-1052.
• Parties: In re CAJUN ELECTRIC POWER COOPERATIVE, INC., Debtor. The Cajun Electric Members Committee, et als., Plaintiff, v. Ralph R. Mabey, as Trustee for Cajun Electric Power Cooperative, Inc., and Teche Electric Cooperative, Inc., Defendants.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Middle District of Louisiana

230 B.R. 693 (1999)

In re CAJUN ELECTRIC POWER COOPERATIVE, INC., Debtor The Cajun Electric Members Committee, et als., Plaintiff, v. Ralph R. Mabey, as Trustee for Cajun Electric Power Cooperative, Inc., and Teche Electric Cooperative, Inc., Defendants.

Civ.A. No. 94-2763 B-2, Bankruptcy No. 94-11474, Adversary No. 96-1052.

United States Bankruptcy Court, M.D. Louisiana.

February 11, 1999.

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David S. Rubin, Kantrow, Spaht, Weaver & Blitzer, Baton Rouge, LA, Lon A. Jenkins, Annette W. Jarvis and Mark Dykes, LeBoeuf, Lamb, Greene, & MacRae, LLP, Salt Lake City, Utah, John Parks, LeBoeuf, Lamb, Greene, & MacRae, LLP, Denver, CO, for Ralph R. Mabey, chapter 11 Trustee.

Henry J. Kaim, Edward L. Ripley, and Patricia B. Tomasco, Sheinfeld, Maley & Kay, Houston, Texas, Bobby S. Gilliam, Wilkinson, Carmody & Gilliam, Shreveport, LA, for Southwest Louisiana Power Company.

Melanie R. Cohen and Benjamin Schwartz, Altheimer & Gray, Chicago, Illinois, John M. Sharp, Baton Rouge, LA, for the Committee of Certain Members.

R. Patrick Vance and Laura Leigh Blackston, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, LLP, New Orleans, LA, for American Commercial Marine Services.

Edna Ayliffe Latchem, Thibaut, Thibaut, Bacot, Latchem & Vogt, LLP, Baton Rouge, LA, Peter J. Lucas, Doherty, Rumble, & Butler, P.C., Denver, Colorado, for Western Fuels Association.

Edna Ayliffe Latchem, Thibaut, Thibaut, Bacot, Latchem & Vogt, LLP, Baton Rouge, LA, Ronald M. Martin, Holland & Hart, LLP, Colorado Springs, Colorado, for Triton Coal Company, for Triton Coal Company.

James R. Lackie and Mark D. Mese, Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, Baton Rouge, LA, for Burlington Northern and Santa Fe Railway.

Gerald Amero, Pierce, Atwood, Scribner, Allen, Portland Maine, Steve Chiccarrelli, Breazeale, Sachse & Wilson, Baton Rouge, LA, for Official Committee of Unsecured Creditors.

Patrick Henry, Sharp, Henry, Cernigliz, Colvin & Weaver, Homer, LA, for Claiborne Electric Power Cooperative.

John W. Hutchison, Voorhies & Labbe, Lafayette, LA, James Davidson and Mark Andrus, Davidson, Meaux, Sonnier, McElligott & Swift, Lafayette, LA, for Southwest Louisiana Membership Corp.

John W. Hutchison, Voorhies & Labbe, Lafayette, LA, Russell Purvis, Smith, Taliaferro, Purvis & Boothe, Jonesville, LA, for Concordia Electric Cooperative, Inc.

James B. Supple, Biggs, Trowbridge, Supple & Cremaldi, Franklin, LA, Berry D. Spears, Winstead, Sechrest & Minick, Austin, TX, for Pointe Coupee Electric Membership Corp.

Tom Phillips and Courtney Smart, Taylor, Porter, Brooks & Phillips, Baton Rouge, LA, for Enteray Gulf States.

Frances M. Toole and Brendan Collins, U.S. Dept. of Justice, Washington, D.C., for Rural Utilities Service.

Matt J. Farley, Preaus, Roddy & Krebs, New Orleans, LA, Michael A. Rosenthal and Janet M. Weiss, Gibson, Dunn & Crutcher, LLP, New York City, for Louisiana Generating, LLC.

Michael R. Fontham, Noel Darce and Karen Freese, Stone, Pigman, Walther, Wittman & Hutchison, New Orleans, LA, for Louisiana Public Service Commission.

REASONS FOR DECISION

GERALD H. SCHIFF, Bankruptcy Judge.

This adversary proceeding was brought by the Cajun Electric Members Committee ("Plaintiffs" or "Committee") seeking a declaratory judgment with respect to several issues pending in this rather massive and substantially complex chapter 11 proceeding. The complaint for declaratory judgment sought relief under eight separate counts, as follows:

                Count I    The 1976 Superseding Wholesale Power Contracts
                           between Cajun and its Members (the
                           "Supply Contracts") are absolutely null
                Count      The Supply Contracts executed by Southwest
                 II        Louisiana Electric Membership Corporation
                           ("SLEMCO") is absolutely null
                Count      Nullity of the SLEMCO Supply Contracts
                 III       renders the other Supply Contracts unenforceable
                Count      The Supply Contracts are not assumable or
                 IV        assignable without the consent of the Members
                Count V    The Supply Contracts are not assumable or
                           assignable without the consent of the Louisiana
                           Public Service Commission ("LPSC").
                Count      A. Any assumption or assignment of the
                 VI           Supply Contracts must include all provisions
                              of such Supply Contracts; and
                           B. The Supply Contracts include the following
                              provisions: (1) the Members have the
                              contractual right to elect Cajun's board of
                              directors; (2) Cajun's board of directors,
                              elected by the Members, has the right to
                              set the rates; (3) Cajun may not earn a
                              profit; and (4) LPSC jurisdiction and
                              Louisiana regulatory law are part of the
                              Supply Contracts.
                Count      A. The plan filed by the Trustee on April 22,
                 VII          1996 (the "Trustee's Plan"), or any similar
                              plan transferring Cajun's assets to a buyer
                              and transforming Cajun into a "paper
                              G & T" to serve as a conduit for assigning
                              the Supply Contracts to the buyer, would
                              modify the Supply Contracts without the
                              Member's consent, in violation of Louisiana
                              law and bankruptcy law.
                           B. The Trustee's Plan, or any similar plan
                              transferring Cajun's assets to a buyer and
                              transforming Cajun into a "paper G & T"
                              to serve as a conduit for assigning the
                              Supply Contracts to the buyer, would result
                              in a de facto assignment of the Supply
                              Contracts without the Members' consent,
                              in violation of applicable Louisiana
                              law and bankruptcy law.
                           C. The Trustee's Plan, or any similar plan
                              transferring Cajun's assets to a buyer and
                              transforming Cajun into a "paper G & T"
                              to buyer, would result in a de facto assignment
                              of the Supply Contracts without
                              the LPSC's consent, in violation of applicable
                              Louisiana law and bankruptcy law.
                Count      Cajun's Bylaws are an executory contract that
                 VIII      must be included in any assumption or assignment
                           of the Supply Contracts.
                

Ralph Mabey, as Trustee of Cajun Electric Power Cooperative, Inc., ("Defendant" or "Trustee") has filed a Counter Claim consisting of two counts, as follows:

                Count I    If the Supply Contracts are void, the Trustee
                           is entitled to judgment against the Members
                           for the expenses incurred by Cajun in reliance
                           upon the validity and enforceability of the
                           Supply Contracts ($4,137,540,063.66).
                Count II   If the Supply Contracts are null and void ab
                           initio because they were not approved by the
                           LPSC, the Trustee is entitled to a declaratory
                           judgment that the original Wholesale Power
                           Contracts, as amended, between Cajun and
                           the Members, except SLEMCO, are revived
                           and the Members, other than SLEMCO, are
                           bound thereby.
                

The Plaintiffs filed a Motion for Summary Judgment on Counts I, II and IV through VII, and the Defendant filed a Motion for Summary Judgment on the same counts together with Counts I and II of the counter claim. On April 23, 1997, the court announced in open court its intention with regard to the rulings on the motions for summary judgment. Trial on the remaining issues was held in conjunction with the hearing on confirmation of the three plans pending in the case.

These Reasons for Decision constitute the court's findings of fact and conclusions of law pursuant to Rule 7052, Federal Rules of Bankruptcy Procedure.

I. JURISDICTION

The court has jurisdiction over this proceeding pursuant to the provisions of 28 U.S.C. § 1334. This matter was referred to this court by United States District Judge Frank J. Polozola. No party in interest has requested a withdrawal of the reference. The court finds that this is a core proceeding pursuant to the provisions of 28 U.S.C. § 157(b)(2).

II. FACTS

A. Cajun's Cooperative Structure

Cajun Electric Power Cooperative, Inc. ("Cajun") was formed in 1962, for the purpose of constructing and operating generating and transmission facilities. Cajun is a nonprofit corporation organized and existing under the electric cooperative law of the State of Louisiana, La.R.S. 12:401-430 (hereinafter, "Elec. Coop. Law"). In the industry, an entity like Cajun which both generates and transmits electricity is known as a "G & T."

The following 12 Louisiana cooperatives are members of Cajun: Beauregard Electric Cooperative, Inc., Concordia Electric Cooperative, Inc., Dixie Electric Membership Corporation, Jefferson Davis Electric Cooperative, Inc., Northeast Louisiana Power Cooperative, Inc., Pointe Coupee Electric Membership Corporation, South Louisiana Electric Cooperative Association, Southwest Louisiana Electric Membership Corporation, Valley Electric Membership Corporation, Washington-St. Tammany Electric Cooperative, Inc., Claiborne Electric Cooperative, Inc., and Teche Electric Cooperative, Inc. (collectively, "Members" and individually, "Member"). Each Member is itself a member-owned electric cooperative utility, organized pursuant to the Elec. Coop. Law. Each Member purchases electric power at wholesale from Cajun and in turn distributes that power at retail to its consumers, who are, generally, the rural citizens of the State of Louisiana.

B. LPSC Jurisdiction and State Regulatory Law

In 1970, the jurisdiction of the LPSC was expanded by statute to include electric cooperatives. In 1974, the LPSC was mandated by Article IV, § 21 of the Louisiana Constitution to regulate all public utilities, including electric cooperatives such as Cajun. See, generally, Cajun Elec. Power Coop. v. Louisiana Pub. Serv....