In re Enron Corp., Bankruptcy No. 01-16034(AJG).

• Decision Date: 01 November 2004
• Docket Number: Adversary No. 3-92909(AJG).,Bankruptcy No. 01-16034(AJG).
• Citation: 316 B.R. 434
• Parties: In re ENRON CORP., et al., Debtors. Enron Corp., Plaintiff, v. Harpreet S. Arora, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

Page 434

316 B.R. 434

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

Enron Corp., Plaintiff, v. Harpreet S. Arora, et al., Defendants.

Bankruptcy No. 01-16034(AJG).

Adversary No. 3-92909(AJG).

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

November 1, 2004.

Kronish Lieb Weiner & Hellman LLP, Ronald R. Sussman, James A. Beldner, Gregory G. Plotko, Of Counsel, New York City, for the Official Employment-Related Issues Committee of Enron Corp., et al.

Balch & Bingham LLP, W. Clark Watson, Christie Lyman Dowling, Of Counsel, Birmingham, AL, Pino & Associates, LLP, Melissa R. Gassler, Of Counsel, White Plains, NY, for James L. Noles.

John H. Bennett, Jr., P.C., John H. Bennett, Jr., Of Counsel, Law Offices of Matthew Hoffman, Matthew Hoffman, Of Counsel, Houston, TX, for Stuart W. Staley.

MEMORANDUM DECISION AND ORDER DENYING CERTAIN DEFENDANTS MOTIONS, PURSUANT TO RULES 8(a)(1) AND 12(b)(2), (6), AND (7) OF THE FEDERAL RULES OF CIVIL PROCEDURE, MADE APPLICABLE HEREIN BY RULES 7008(a) AND 7012(b) OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE, TO DISMISS PLAINTIFF'S ACCELERATED DISTRIBUTION AVOIDANCE ACTIONS

ARTHUR J. GONZALEZ, Bankruptcy Judge.

Before the Court are motions brought by two former employees of the debtors, seeking to dismiss the avoidance actions filed against them by Enron Corp. ("Enron"). Employee-defendant James L. Noles ("Noles") moves to dismiss: (1) pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure (hereinafter each rule entitled the "Rule"), made applicable herein by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure (hereinafter each rule entitled the "Bankruptcy Rule"), since the complaint failed to show that the Court has personal jurisdiction over him based upon Bankruptcy Rule 7004; and (2) pursuant to Rule 8(a)(1), made applicable herein by Bankruptcy Rule 7008(a), because the complaint has no averments that can establish personal jurisdiction over him. Employee-defendant Stuart W. Staley ("Staley") moves to dismiss: (1) pursuant to Rule 12(b)(2) because the Court lacks personal jurisdiction over him based upon Bankruptcy Rule 7004; (2) pursuant to Rule 12(b)(6) since the complaint failed to state a claim on which relief can be granted; and (3) pursuant to Rule 12(b)(7) because the complaint failed to join Enron Expat Services, Inc. ("Enron Expat") as a necessary party under Rule 19(c), made applicable herein by Bankruptcy Rule 7019.¹ In the alternative, pursuant to Bankruptcy Rule 7087 and section 1412 of title 28 of the United States Code, Noles and Staley move to transfer venue to the Southern District of Texas² based on "convenience of the parties" assertions. This memorandum decision will only address the motions to dismiss; the section 1412 motions will be addressed in a separate decision. Upon consideration of the parties' pleadings and arguments made at the hearings regarding Noles's and Staley's motions to dismiss, the Court denies said motions.

I. Background

A. General Procedural History

Commencing on December 2, 2001, Enron Corp. and certain of its affiliated entities (collectively, the "Debtors" or "Enron," as applicable) filed for voluntary petitions 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. As of the date hereof, 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.

On December 12, 2001, pursuant to section 1102 of the Bankruptcy Code, the United States Trustee for the Southern District of New York (the "United States Trustee") appointed the Official Committee of Unsecured Creditors of Enron Corp., et al. (the "Creditors' Committee") to represent the interests of all unsecured creditors of the Debtors. The Creditors' Committee has been reconstituted from time to time.

On February 21, 2002, the Court directed the United States Trustee to appoint an examiner (the "ENA Examiner") in the Enron North America Corp. Debtor case pursuant to section 1104 of the Bankruptcy Code. The Court entered an order on March 12, 2002 approving the appointment of Harrison J. Goldin as the ENA Examiner. At various intervals, the ENA Examiner filed reports concerning these cases.

On March 27, 2002, pursuant to section 1102 of the Bankruptcy Code, the United States Trustee appointed the Official Employment-Related Issues Committee of Enron Corp., et al. (the "Employee Committee") in the Debtors' chapter 11 cases. The Employee Committee has been reconstituted from time to time.

The Court also directed on April 8, 2002 the appointment of an examiner (the "Enron Examiner") in the Debtors' cases pursuant to section 1104 of the Bankruptcy Code to inquire into, inter alia, all transactions involving special purpose vehicles or entities created or structured by or for the Debtors, and transactions not reflected on the Debtors' balance sheets or not reflected in the respective debtor's financial statements in accordance with generally accepted accounting principles. On May 24, 2002, an order was entered approving the United States Trustee's appointment of Neal Batson, Esq., as the Enron Examiner. At various intervals, the Enron Examiner filed reports concerning these cases.

During June 2004, this Court held hearings to consider confirming a plan of reorganization under chapter 11 of the Bankruptcy Code proposed by the Debtors. On July 15, 2004, the Court entered findings of fact and conclusions of law supporting confirmation of the Debtors' Fifth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code filed on July 2, 2004 and entered an order confirming the Plan and the global compromise of inter-estate issues embodied in the motion filed by the Debtors and approving the global compromise in the event the Plan is not confirmed or does not become effective for one or more of the proponents of the Plan. The Plan provides for the disposition of all of the Debtors' assets and the distribution of value realized therefrom in accordance with the priority scheme of the Bankruptcy Code.

There have been a number of avoidance actions brought by the Creditors' Committee on behalf of the Debtors, the Employee Committee on behalf of itself, and the Employee Committee on behalf of the Debtors.³

B. Accelerated Distribution Avoidance Actions

In considering a motion to dismiss, the Court accepts as true the factual allegations in a complaint. See Dwyer v. Regan, 777 F.2d 825, 828-29 (2d Cir.1985). The allegations of Enron's complaint are as follow.

Enron and its affiliates had two active non-qualified deferred compensation plans in effect in 2001, that is, the Enron Corp. 1994 Deferral Plan, Restated as of October 6, 2000, and the Enron Expat. Services, Inc.1998 Deferral Plan, Restated as of September 1, 2001 (collectively, the "Deferral Plans"). On or about October 2001 through November 2001, there were approximately 240 to 350 participants in the Deferral Plans.

Certain qualified executive employees (known as "Top-Hat" employees) of Enron or its affiliates were permitted under the Deferral Plans to defer current earnings and, thereby, defer taxes on the amounts deferred. The Deferral Plans provided that the deferred compensation owed to Top-Hat employees was part of the general corporate assets of the Debtor and that, with respect to benefits under the Deferral Plans, such obligations were unsecured obligations of the Enron and its affiliates.

Under the Deferral Plans, the Top-Hat employees had a right of election to accelerate deferred compensation payments subject to the consent of a committee for each of the Deferral Plans. Prior to October 29, 2001, each of the Deferral Plans did not have a standing committee; however, on such date, Kenneth Lay, Enron's then Chief Executive Officer, appointed Greg Whaley ("Whaley") as a committee of one for each of the Deferral Plans.

Between October 25, 2001 and November 30, 2001, approximately 206 Top-Hat employees made requests for accelerated deferred compensation payments. Whaley approved 126 such requests, which resulted in Enron providing accelerated distributions (the "Accelerated Distributions") between October 30, 2001 and December 5, 2001 to 113 Top-Hat employees in the cash equivalent of $53,135,993.10. The remaining Deferral Plans' participants requesting accelerated deferred compensation payments did not receive such payments.

By order dated September 23, 2003, the Court granted, inter alia, the Employee Committee standing and authority to commence actions (the "Accelerated Distribution Avoidance Actions") on behalf of the Debtors' estates to avoid and to recover the Accelerated Distributions that were made to Top-Hat employees under the Deferral Plans.

Accordingly, on November 14, 2003, the Employee Committee filed a complaint (the "Complaint") on behalf of Enron, seeking to avoid and to recover pre-petition and post-petition Accelerated Distributions made by Enron to Top-Hat employees in 2001, including (1) Noles, who allegedly received such a distribution on November 16, 2001, and (2) Staley, who allegedly received such a distribution on December 5, 2001.⁴ (Compl., Adv. Proc. No. 03-92909(AJG))

Subsequently, Noles filed his above-referenced motion to dismiss on December 17, 2003 and Staley filed his above-referenced motion to dismiss on January 30, 2004.⁵ In turn, the Employee Committee filed its opposition to Noles's motion on January 12, 2004 and to Staley's motion on February 19, 2004.⁶

II. Discussion

A. Rule 8(a)(1) Is Inapplicable To Noles's Personal Jurisdiction Contention

Noles contends that while Rule 8(a)(1), made applicable herein by Bankruptcy Rule 7008(a), specifically requires that the Complaint contain "a short and plain statement of the grounds upon which the court's jurisdiction depends," Enron's Complaint...